NCES 2009-325 U.S. DEPARTMENT OF EDUCATION

Financial Accounting for Local 

and State School Systems:

2009 Edition

Financial Accounting for Local 

and State School Systems: 

2009 Edition 

JUNE 2009 

Gregory S. Allison 

University of North Carolina 

Steven D. Honegger 

American Institute for Research 

Frank Johnson 

National Center for

Education Statistics 

Lee Hoffman 

Project Officer 

National Center for

Education Statistics 

NCES 2009-325 

U.S. DEPARTMENT OF EDUCATION 
U.S. Department of Education 

Arne Duncan 

Secretary 

Institute of Education Sciences 

John Q. Easton 

Director 

National Center for Education Statistics 

Stuart Kerachsky 

Acting 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. Unless specifically noted, all information contained herein is in the public domain. 

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 

June 2009 

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

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

Suggested Citation 

Allison, G.S., Honegger, S.D., and Johnson, F. (2009). Financial Accounting for Local and State School Systems: 2009 Edition

(NCES 2009-325). National Center for Education Statistics, Institute of Education Sciences, U.S. Department of Education. 

Washington, DC. 

For ordering information on this report, write to 

U.S. Department of Education 

 ED Pubs 

P.O. Box 1398 

 Jessup, MD 20794–1398 

Or 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

Portions of GASB Concepts Statement No. 1, Objectives of Financial Reporting, copyright by the Governmental 

Accounting Standards Board, 401 Merritt 7 PO Box 5116, Norwalk, CT 06856-5116, are reproduced with permission. 

Complete copies of that document are available from GASB. 
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.

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

set of data element definitions and suggestions for structuring a report 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. 

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 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. 
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v

Acknowledgments 

The 2009 edition updates the earlier 2003 edition of the handbook. The 2003 edition was the 

work of the NCES National Forum on Education Statistics, Core Finance Data Task Force. That 

task force systematically rewrote nearly the entire text, incorporating new chapters and 

reviewing and revising the account code structure and account code definitions. 

NCES would like to thank all of the accountants and data coordinators in the state education 

agencies who have used the 2003 edition of the handbook and have provided advice on 

improving and updating the handbook. Some of those users reviewed this edition, and NCES 

would like to thank: Su McCurdy, Iowa Department of Education; Peggy O'Guin, California 

Department of Education; Sara Barnes, Kansas State Department of Education; and Vaughn 

Altemus, Vermont State Department of Education. 

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 
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vii 

Contents

Page

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

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

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

Major Changes and Chapter Highlights ............................................................................................1 

Chapter 2: Financial Reporting Within a System of Education Information...................................................5 

Background......................................................................................................................................5 

Useful Applications of Information .................................................................................................7 

Users of School Finance Information ..............................................................................................8 

Summary........................................................................................................................................10 

Chapter 3: Budgeting ...................................................................................................................................11 

Budgetary Objectives.....................................................................................................................12 

Budgetary Approaches...................................................................................................................13 

Operating Budget Responsibilities and Guidelines...........................................................................17 

Financial Forecasting and Planning ................................................................................................19 

Planning for Annual and Multiyear Construction and Grant Programs ...........................................21 

Budgets for Multiyear Construction Projects ..................................................................................21 

Preparation of Construction Project Budgets and Related Financing...............................................22 

Chapter 4: Governmental Accounting..........................................................................................................23 

Governmental GAAP Hierarchy .....................................................................................................24 

Measurement Focus and Basis of Accounting.................................................................................25 

Fund Structure ................................................................................................................................26 

Internal Control Structure ...............................................................................................................28 

Other Issues Affecting Educational Entities....................................................................................34 

Chapter 5: Financial Reporting ....................................................................................................................37 

Financial Statement Elements .........................................................................................................38 

Liabilities........................................................................................................................................54 

Fund Balance/Net Assets.................................................................................................................61 

Revenues ........................................................................................................................................63 

Fund Financial Statements—Reporting of Expenditures/Expenses ..................................................67

Government-Wide Statements—Reporting of Expenses............................................................... 69 

Financial Statements .......................................................................................................................70

Conclusion ..................................................................................................................................... 86 

Chapter 6: Account Classification Descriptions ......................................................................................... 87 

 Fund Classifications....................................................................................................................... 88 

Program..........................................................................................................................................91 

Balance Sheets/Statement of Net Assets........................................................................................94

Classifications of Revenue and Other Financing Sources ...........................................................102 

Classifications of Expenditures....................................................................................................113 

 Function...................................................................................................................................113 

 Object ......................................................................................................................................125 
viii 

Contents—Continued

Page

Project/Reporting .........................................................................................................................137 

Level of Instruction......................................................................................................................138 

Additional Classifications............................................................................................................139 

Chapter 7: Cost Accounting and Reporting for Educational Programs ...................................................141 

The Expanding Need for Greater Detail in Financial Reporting .................................................141 

Concepts of Program Cost Reporting by School .........................................................................141 

Analysis of Reported Costs..........................................................................................................143 

The Program Cost Reporting Structure........................................................................................143

Elements of Program Costs..........................................................................................................144 

Use of Cost Reporting Software With Existing Data Systems ....................................................146 

Direct Costs..................................................................................................................................146 

Indirect Costs ...............................................................................................................................146 

Summary of the Annual Program Cost Reporting Process..........................................................147 

Analysis of Cost Reports .............................................................................................................148 

Conclusion ...................................................................................................................................148 

Chapter 8: Activity Fund Guidelines .......................................................................................................149 

Types of Activity Funds and Proper Classification .....................................................................149 

Controls for Establishing and Maintaining Activity Funds .........................................................151 

Preparation and Review of Monthly Activity Fund Reports..........................................................154

Summary......................................................................................................................................156 

References.................................................................................................................................................159 

Appendix A—Summary of Account Code Changes Since 2003..............................................................A-1 

Appendix B—Other Resources................................................................................................................. B-1 

Appendix C—Glossary of Acronyms ................................................................................................................ C-1 

Appendix D—Illustrative Financial Statements for an Independent School District.....................................D-1 

Appendix E—Criteria for Distinguishing Equipment From Supply Items.............................................. E-1 

Reasons for Distinguishing Between Supplies and Equipment ................................................... E-2 

The Disadvantages of a Supply/Equipment List.......................................................................... E-3 

Criteria for Distinguishing Supply and Equipment Items............................................................ E-3 

Distinguishing Between Built-In and Movable Equipment......................................................... E-4 

Selecting the Level of Control for Supplies and Equipment ....................................................... E-6 

Index ...................................................................................................................................................Index-1 
ix 

List of Exhibits 

Exhibits Page

1. Measurement focus and basis of accounting for financial statements...................................26 

2. Financial statement components and user groups .................................................................37 

3. Straight-line depreciation method .........................................................................................49

4. Accumulated depreciation method........................................................................................49 

5. Net asset classification ..........................................................................................................63 

6. Classification of revenues .....................................................................................................66 

7. Contents of a Comprehensive Annual Financial Report (CAFR).........................................72 

8. Measurement focus and basis of accounting for financial statements...................................78 

9. Important distinctions between MD&A and letter of transmittal..........................................84 

10. Program cost report format ................................................................................................145 

11. Cost analysis example .........................................................................................................148 

12. Lines of authority for student activity funds .......................................................................152 

Summary of Account Code Changes Since 2003 

A-1. Changes to account code descriptions.................................................................................A-2 

A-2. New account codes..............................................................................................................A-2 

Basic Financial Statements

D-1. Sample Independent School District Statement of Net Assets: June 30, 20X2 ..................D-3 

D-2. Sample Independent School District Statements of Activities for the Year Ended 

 June 30, 20X2......................................................................................................................D-4 

D-3. Sample Independent School District Statement of Activities for the Year Ended 

 June 30, 20X2......................................................................................................................D-5 

D-4. Sample Independent School District Balance Sheet—Governmental Funds: 

 June 30, 20X2......................................................................................................................D-6 
x

List of Exhibits—Continued 

Exhibits Page

D-5. Sample Independent School District Reconciliation of the Governmental Funds 

Balance Sheet to the Statement of Net Assets.....................................................................D-7 

D-6 Sample Independent School District Statement of Revenues, Expenditures, and 

Changes in Fund Balances—Governmental Funds: For the Year Ended June 30, 20X2 ...D-8 

D-7 Sample Independent School District Reconciliation of the Governmental Funds 

Statement of Revenues, Expenditures, and Changes in Fund Balances to the 

Statement of Activities .......................................................................................................D-9

D-8 Sample Independent School District Statement of Net Assets — 

 Proprietary Funds: June 30, 20X2.....................................................................................D-10 

D-9 Sample Independent School District Statement of Revenues, Expenses, and 

Changes in Fund Net Assets—Proprietary Funds: For the Year Ended June 30, 20X2 ...D-11 

D-10 Sample Independent School District Statement of Cash Flows—Proprietary Funds: 

For the Year Ended June 30, 20X2 ..................................................................................D-12 

D-11 Sample Independent School District Statements of Fiduciary Net Assets:

June 30, 20X2 ...................................................................................................................D-13 

D-12 Required Supplementary Information—Sample Independent School District

Budgetary Comparison Schedule—General Fund: For the Year Ended June 30, 20X2 ..D-14 

Criteria for Distinguishing Equipment From Supply Items 

E-1. Criteria for Distinguishing Equipment From Supply Items ................................................ E-5 
1

Chapter 1: Introduction 

The 2009 edition of the National Center for Education Statistics (NCES) handbook Financial

Accounting for State and Local School Systems reflects changes in new accounting and financial 

reporting guidance that have been made since the 2003 edition was released. The handbook will 

receive periodic updates to ensure that contemporary issues are regularly incorporated into the 

accounting guidance for schools. The online version found at 

http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2009325 will be updated as revisions are 

approved.

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

that incorporates guidance from the Governmental Accounting Standards Board (GASB) 

Statements through Statement 47. Its purpose is to help ensure that education fiscal data are 

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

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

statements for the same categories and types of funds. This revised and restructured guidance 

focuses on the following: 

defining account classifications that provide meaningful financial management information 

for its users; 

complying with Generally Accepted Accounting Principles (GAAP) established by GASB; 

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

supporting federal reporting requirements. 

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

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 used must be capable of producing financial reports 

that conform both with GAAP and with the legal requirements of each state, if they differ. 

Guidance regarding the use and reporting of finance data can be found in the Forum Guide to 

Core Finance Data Elements (NFES 2007-801), produced by the National Forum on Education 

Statistics (2007). That publication includes a review of the federal datasets containing finance 

data, commonly reported finance measures, and performance indicators. 

Major Changes and Chapter Highlights 

This 2009 edition of the handbook maintains the general style and format of the 2003 edition. 

The following is a summary of the topics covered in each chapter. 
2

Chapter 2: Financial Reporting Within a System of Education Information 

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

includes an examination of the advantages of aligning the fiscal data system with a 

comprehensive information system and an overview of the users of education information. 

Chapter 3: Budgeting 

This chapter describes 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 

This chapter provides descriptions of accounting systems and requirements for governmental 

accounting systems to provide information on internal control practices, as well as information 

on fund-level reporting and government-wide reporting required by GASB Statement 34 and 

related statements. 

Chapter 5: Financial Reporting

This chapter outlines the major financial statement elements and reporting requirements for 

governments. It includes the most significant additions and modifications in this version of the 

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

changes related to GASB Statement 34 and subsequent statements. The GASB statements that 

have been issued since the last edition of this handbook and have potentially significant impact 

on governmental entities are referenced in this version. These statements are as follows: 

GASB Statement 40, Deposit and Investment Risk Disclosure—an Amendment of GASB 

Statement 3;

GASB Statement 42, Accounting and Financial Reporting for Impairment of Capital Assets 

and for Insurance Recoveries;

GASB Statement 43, Financial Reporting for Postemployment Benefit Plans Other Than 

Pension Plans; 

GASB Statement 44, Economic Condition Reporting: The Statistical Section—an

Amendment of National Council on Governmental Accounting (NCGA) Statement 1;

GASB Statement 45, Accounting and Financial Reporting by Employers for Postemployment 

Benefits Other Than Pensions;

GASB Statement 46, Net Assets Restricted by Enabling Legislation—an Amendment of 

GASB Statement 34; and 

GASB Statement 47, Accounting for Termination Benefits.

Although all of the above statements have the potential to affect the accounting and financial 

reporting practices of governmental entities that use this handbook as a resource, some will have 

particularly significant effects: 

GASB Statement 40 will influence every governmental entity’s note disclosures regarding 

deposit and investment risk categorizations; 
3

GASB Statement 42, while not affecting every government in every year, addresses how 

governments deal with significant capital assets that become impaired; 

GASB Statement 44 will affect every governmental entity that prepares a Comprehensive 

Annual Financial Report (CAFR). This statement has significantly changed the content and 

format of the statistical section of the CAFR; and 

GASB Statement 45 will impact all governmental entities that offer postemployment benefit 

plans. Significant disclosure requirements, as well as potential financial statement impacts of 

such plans, are addressed in this statement. 

In addition to these new GASB Statements, this chapter also addresses E-Rate. E-Rate is a 

discount available to schools and libraries for telecommunications services such as Internet 

access, wiring for access, and so on. Though GASB has not specifically addressed this issue, this 

handbook provides an overview of how E-Rate works and general guidance on its accounting 

and financial reporting implications. 

Chapter 6: Account Classification Descriptions

This chapter provides account codes. Obsolete language has been removed and codes for 

technology and tuition have been expanded. Gifted and talented programs are no longer 

classified as special education programs, but are now part of other instructional programs. 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. 

Chapter 8: Activity Fund Guidelines 

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

distinguishes activity funds and provides proper classifications. The chapter gives initial 

guidance for improving controls over, and for accounting for and reporting, these funds. The 

requirements of the most recent GASB standards are also addressed. 
4

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5

Chapter 2: Financial Reporting Within a System of 

Education Information

This chapter examines the advantages of a fiscal data system that is part of a comprehensive 

education information system. It also describes useful applications of education information and 

identifies frequent users of education information. 

Background

The successful management of any large organization requires effective use of information. 

Information about education ranges from staff and student information to financial information 

at the school facility and program levels. A comprehensive education information system can 

provide benefits such as the following: 

Using data in decisionmaking. Good information helps drive good decisions. An 

information system can make good decisionmaking possible for school-based administrators 

as well as for external users of education information. 

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 baselines for improvement. 

Using data for timely program evaluation. To be effective, program evaluation must be 

timely as well as complete. When program and other data are compiled and linked in a welldesigned information system, the goals of schooling can be met more effectively and 

efficiently.

Using data for budgetary control. Greater budgetary control is possible when all of the 

costs of school operations are available. 

Using data to improve administrative efficiency and mandated reporting. Building core 

databases around data elements of the National Center for Education Statistics (NCES) 

Common Core of Data (CCD) provides comparability and can improve administrative 

efficiency and facilitate mandated reporting. 

The benefits of a comprehensive information system become especially apparent when 

examining the relationship between programs and costs. To make appropriate, cost-effective, and 

timely decisions about students, schools, and programs, accurate and complete information must 

be widely available to 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. A comprehensive uniform information system allows a 

complete, accurate, and timely display of the distribution and use of resources. 
6

The value of a comprehensive information system also becomes evident when 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 on the costs of an 

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

accountability has turned the spotlight on school achievement, with the focus on how much it 

costs to achieve a minimally 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, students with limited proficiency in English, 

and students from economically disadvantaged families (Reschovsky and Imazeki 1997, p. 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 rely heavily on 

data that cross into areas other than finance. Thus, 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 the following key questions: 

How much is spent on education? 

Who pays for education? 

How are funds allocated? 

How are educational resources linked to student achievement? 

To answer these questions, an education information system requires more than a finance 

component; it also requires a student records system, a staff records system, a property system, a 

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

management systems can be linked to student records systems to provide policymakers with 

greater analytical capability to make appropriate, cost-effective, and timely decisions. 

A data system that can support these complex conditions places a premium on standardization. 

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. 

1

 For an overview of court cases involving issues related to education reforms, see Overview and Inventory of State Education 

Reforms: 1990 to 2000 (Hurst et al. 2003). 
7

Education data collected nationally by the federal government provides a facet of this 

standardization by ensuring data comparability. For example, NCES collects public education 

finance data through the National Public Education Financial Survey (NPEFS) and the School 

District Finance Survey (F-33).2

 The NPEFS, which is part of the CCD, began data collection in 

the 1981–82 school year. The F-33, which is part of the U.S. Census Bureau’s Annual Survey of 

Local Governments, is also included in the CCD. NCES works with the Census Bureau to ensure 

that all districts are included in each year’s collection. The data items in both the NPEFS and the 

F-33 are based on the account codes presented in this handbook, and each item on the survey 

forms is defined through reference to the account codes presented in chapter 6.3

Finance data collected annually from state education agencies through the NPEFS are used in the 

formula for allocating Title I and other federal grants to school districts, as specified under 

Section 153(a)(1)(I) of the Education Sciences Reform Act of 2002, which authorizes NCES to 

gather data on the financing of education. In addition to finance data, the NPEFS 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 definitions are based on 

the account codes and finance item definitions presented in this handbook. 

Useful Applications of Information

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. Therefore, the 

potential value of data on education is enormous. 

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

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

data systems to become increasingly comprehensive. For example, the financial reports of state 

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

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

compliance with finance-related laws, rules, and regulations; to assist in evaluating the efficiency 

and effectiveness of processes; and in planning.

The Governmental Accounting Standards Board (GASB) defines financial reporting as the 

means of communicating financial information to users (GASB Statement 1, Paragraph 32). For 

this communication to be effective, financial information must have the following basic 

characteristics:

2 NCES is the primary federal entity for collecting, analyzing, and reporting data related to education in the United 

States and other nations. 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. 

3

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

sites listed in appendix B. 
8

Understandability. Information should be clear, but not oversimplified. Explanations and 

interpretations should be included where necessary. 

Reliability. Information should be verifiable and free from bias. It should be comprehensive; 

thus, nothing should be omitted that is necessary to accurately represent events and 

conditions. However, nothing should be included that might cause the information to be 

misleading. 

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 

decisionmaking. 

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

and conditions. If a change is made, the nature of and reason for the change, as well as its 

effects, 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 because of arbitrary implementation (GASB Statement 1, Paragraphs 63 

through 68). 

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

decisions about control over the use of an information system. Some policies are codified in laws 

or regulations; others are official statements, executive orders, or agency directives. Government 

policies on information systems 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, public-private information 

partnerships, and reuse of information. 

Further, technological advancements such as the Internet have made policy issues concerning 

data appropriateness, privacy and ethics as they relate to data availability (e.g., individual student 

and staff records) more apparent and more difficult for education information systems to provide 

high quality data that are useful to both the general public and policymakers. 

Users of School Finance Information 

To be of value, information must meet the needs of those who use it. Users of school finance 

information may be divided into four major groups: those to whom the school districts and state 

departments of education are primarily accountable (the general public); those who directly 
9

represent the general public (legislative and oversight bodies); those who perform academic 

research using education information (education researchers); and those who lend or participate 

in the lending process (investors and creditors) (GASB Statement 1, Paragraphs 35 through 37). 

Each of these groups has different needs, but each is concerned with the design and 

implementation of an education system that is programmatically and fiscally effective and 

efficient.

The General Public 

One objective of the general public is to purchase the maximum amount of service with a 

minimum amount of taxes. By holding government fiscally accountable, school financial 

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

However, defining and measuring quality services through 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 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 

general public’s need to know.

Legislative and Oversight Bodies 

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

performance, aid in day-to-day decisionmaking, and keep the general public informed. Program 

coordinators, in particular, but also classroom teachers and noninstructional employees, use 

financial information to plan budgets and to request additional funding or redirect existing funds. 

Financial information embedded in a comprehensive education information system also allows 

administrators to assess the areas of greatest need and plan how best to allocate resources.

In addition, the local school board is responsible for establishing policies and for overseeing and 

appraising administrators as they carry out these policies. Thus, the board needs timely 

information about situations that may need corrective action as well as information with which to 

judge administrators’ efficiency and effectiveness. Some of this information can be provided by 

general-purpose financial reports, but comparable information about other school districts is 

needed as a basis for more informed comparison. 

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

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

districts. Thus, governance units need information on school districts’ operations to decide how 

to commit resources as well as comparable information about groups of school districts in order 

to formulate funding policies. To this end, legislators are interested in data that can show 

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 
10

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

Thus, the defining characteristics of an accounting and data reporting system of interest to state 

and federal legislators are comparability of data, the ability to classify data in a variety of ways, 

and timeliness in reporting. 

Education Researchers 

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, the 

benefits of providing the data must be weighed against their cost. This is a difficult choice to 

make because the benefits of research are unknown until the research has been done. 

Fortunately, a comprehensive, well-designed information system—one with data that are valid, 

reliable, and timely and that provides access to data in a format that researchers can use—can 

serve both specialized constituencies and the broader public. 

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 an institution’s available and possible future 

financial resources, actual and contingent liabilities, and the overall debt position to evaluate its 

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 an institution to repay debt. Trend analysis helps investors and 

creditors project future revenues and predict possible allocation of those revenues. 

Summary 

All four data user groups discussed above are interested in comparing original or modified 

budgets with actual results. For example, to assess accountability, citizens as well as legislative 

and oversight bodies want to ensure that resources are used in accordance with appropriations. 

Overspending may indicate poor financial management, weak budgetary practices, or 

uncontrollable and unforeseen circumstances. Underspending may indicate effective financial 

management that provides the necessary quality and quantity of services within the available 

appropriations or 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. Thus, Financial Accounting for State and Local School Systems 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. 
11

Chapter 3: Budgeting

Budgeting is a major element of financial data activity. 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 resources 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 Governmental Accounting Standards Board 

(GASB).

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

the importance of sound budgeting practices for the following reasons: 

The type, quantity, and quality of goods and services provided by government 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. 

Goods and services provided by government are generally considered critical to the public 

interest and welfare. 

The scope and diversity of operations in a governmental entity 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 organization’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; 
12

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

process; and 

the governmental organization’s plan for acquiring and using resources. 

In an education 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. 

Budgetary Objectives 

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 constitutions, it is a cornerstone of budgeting and 

financial reporting.

GASB recognizes the importance of accountability with the following objectives in its Statement

1, Objectives of Financial Reporting:

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

are 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 (GASB Statement 1, Paragraph 77). 

Accountability is often established by incorporating these objectives into legal mandates that 

require state and local public sector budgets to 

be balanced (i.e., with current revenues 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 the long-term fiscal health of 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 this fundamental objective must be in 

accordance with applicable state and local laws and policies. 
13

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 

that in the approved budget. Through integration with the budget, 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, 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 is not only an annual exercise to determine the 

allocation of funds, but also 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 organizations in the United States have used a variety of 

budgetary approaches and formats. The development of more advanced budget philosophies 

reflects growth in both the scope and 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 the following categories: (1) line-item, or 

“traditional,” budgeting; (2) performance budgeting; (3) program and planning (“program”) 

budgeting; (4) zero-based budgeting (ZBB); (5) site-based budgeting; and (6) outcome-focused 

budgeting. In addition, many governmental organizations use a variety of hybridized versions to 

address their specific needs. Although the underlying preparation process is distinct in each 

approach, the 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 six 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. 

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, it enhances 

organizational control and allows the accumulation of expenditure data at each functional level. 
14

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 line item budgeting presents little useful information to decision makers 

on the functions and activities of organizational units. Because this budget presents proposed 

expenditure amounts only by category, the justifications for such expenditures are not explicit 

and are often not intuitive. In addition, it may invite micromanagement 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 a time period. An organization’s total budget is 

the sum of all the standard unit costs multiplied by the number of units expected to be provided. 

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

require a more flexible 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. Performance budgeting also 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, it eases legislative 

budget revisions because program activities and levels of service may be budgeted on the basis 

of standard cost inputs. 

However, performance budgeting is limited by 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 an organization’s goals or the 

quality of its services or outputs. 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 education enterprise. In summary, performance budgeting may offer 

considerable enhancement to the line-item budget when appropriately applied. 

Program and Planning (Program) Budgeting 

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, sometimes referred to as 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. Program budgeting is 
15

flexible enough to be applied in a variety of ways, depending on organizational needs and 

administrative capabilities. 

Program budgeting differs from the approaches previously discussed because it places less 

emphasis on control and evaluation. 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. Program budgeting systems place a great deal of emphasis on identifying the fundamental 

objectives of a governmental entity and on relating all program expenditures to these objectives. 

This conceptual framework includes the practices of explicitly projecting the long-term costs of 

programs and evaluating 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 it is used.

However, several conditions can limit the implementation of this approach, including changes in 

long-term goals, a lack of consensus regarding the fundamental objectives of the organization, a 

lack of adequate program and cost data, and the difficulty of administering programs that involve 

several organizational units. Despite these 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, program budgeting information may be used to supplement and 

support traditional budgets in order to increase their informational value. 

Zero-Based Budgeting (ZBB) 

The basic tenet of 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 organization’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 

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

and paperwork.

Experience with the implementation of this approach indicates that only a periodic 

comprehensive review of ZBB decision packages for some program activities may be necessary. 

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 
16

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 because it provides greater control and reporting of school-level data. This 

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. 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. 

Despite its substantial benefits, site-based budgeting also has limitations. First, organizations 

with limited resources may not be capable of granting a meaningful level of site-based 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 through the careful design 

of site-based budgeting guidelines and thorough 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 resources, has 

precipitated an effort to ensure a 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. 
17

Outcome-focused budgeting is closely linked to the planning process. 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 mission-driven (i.e., outcome-focused) 

governments are superior to those that are driven more by rules and regulations than by goals, 

because they are more efficient, more effective in producing desired results, more innovative, 

and more flexible, and have higher employee morale (Osborne and Gaebler 1993). In the context 

of increased scrutiny of governmental costs, including those for 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 

site-based decisionmaking in some states has increased the integration of planning and budgeting 

at the school level; however, even if site-based decisionmaking has not been adopted, 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 be largely determined by the local school 

board and superintendent. 

This section 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, it may be useful in the development of sound budgeting procedures. Given the 

diversity of budgetary and financial reporting found in individual states, the process described 

here may be customized to conform to particular local and state requirements. The discussion in 

this section describes a typical site-based budgeting approach. 

Roles and Responsibilities 

The local school board and the superintendent should establish guidelines and a meticulous 

budget preparation process. To achieve this, the delegation of budget responsibilities among 

administrators at the district and school levels 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, 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.

Budget Preparation 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, at a minimum, the guidelines should contain the following elements: 
18

a budget transmittal letter from the superintendent, that provides the overall context for 

budget development at the school level; 

a budgetary overview, that 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 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; and 

a list of the account codes necessary for preparing the budget. 

Many of these elements may be combined into the budgetary overview. The preparation 

guidelines may also contain the following: 

guidelines for estimating standard school resource allocations, that 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; and 

instructions for submitting school budgets to the district office, including the number of 

copies, due dates, and personnel to contact for assistance. 

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, such as 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 change in the current year’s calendar. Also, the current year’s 

calendar should incorporate changes in the budget development process. If the process has been 

substantially altered, creating an entirely new calendar may be necessary. The following steps 

may be used: 

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

used, 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. 
19

Assign completion dates to each activity. Some districts 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 the operating environment on future operations. It is an integral part of all ongoing planning 

efforts. Financial forecasting is important for several reasons such as the following: 

It facilitates planning efforts by quantifying the future costs and benefits of strategic 

decisions. Thus, budgetary priorities may be evaluated on the basis of their long-term 

impacts. 

It 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. 

It enhances decisionmaking at all levels of administration. Forecasts provide valuable insight 

into future issues, which allows administrators to be proactive. Forecasting 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 

development process. When this is done, current budgetary decisions may be evaluated for their 

long-term results. 

Several action steps may increase the reliability of forecasts, if taken before forecasts are 

prepared. These steps include the following: 

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 the forecast being prepared. 

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

extrapolated or summarized data. Sources should be documented and verified so that any 

concerns about data validity can be allayed.

Specify the underlying assumptions. Assumptions in the forecasts should be explicit, with 

proper documentation based on actual data. 
20

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 can 

adversely affect forecasts. 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 1988). 

A variety of financial and related forecasts or projections are necessary for the preparation of a 

comprehensive budget, including: 

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 a failure to meet financial 

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

shortages and thus provides an opportunity for preemptive corrective actions to be taken. 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 to 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 integration of the budget and the accounting 
21

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 provide a valid basis for the 

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

process, 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 usually developed locally; however, some 

granting agencies may require specific 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 determined through 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 the duplication of efforts, 

ensure the efficient use of resources, and ensure that all identified needs are addressed. 

Prepare program budgets to support implementation plans. 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 budgets for multiyear construction projects has two major stages. The first 

stage involves extensive planning to identify facilities’ needs. This may be accomplished 

through the process, outlined earlier in this 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. Evaluations should identify the costs for a particular program. From these inputs, 

need and cost, an agency can determine whether to pursue a construction project. Once this 

decision is made, the second stage of budget development for project financing can begin. This 

process does not necessarily need to be incorporated into the annual budget process. 
22

Preparation of Construction Project Budgets and Related Financing 

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

explored. Funding mechanisms often involve some form of bonded indebtedness; however, 

building programs may also be funded with accumulated operating funds or with capital leases 

and installment payments. If 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 the initiative 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 they can be placed on the ballot.

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

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

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

After 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 

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

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

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

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

using a multiyear format should be reviewed periodically by administrators, and regular reports 

should be 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 organization’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 greater level of justification for annual expenditures and 

decentralized decisionmaking. Site-based budgeting has gained 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. 
23

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 governmental entities, 

investors, creditors, and citizens—that monitor their activities. All forms of monitoring involve 

collecting and interpreting data, and this oversight function is often performed using information 

provided in governmental reports. Among the most important types of reports 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 longer-term focus such as capital budgeting and 

maintenance. Additionally, differences exist in the amount of detail that various users need. 

Following more than a decade of research and analysis, the Governmental Accounting Standards 

Board (GASB) 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 its Statement 34, Basic Financial Statements—and Management’s 

Discussion and Analysis—for State and Local Governments (GASB 1999). This new model 

integrated 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., 

government-wide financial statements). The two levels of financial reporting are intended to 

provide more relevant information that results in greater accountability by state and local 

governments; and 

enhance the understandability and usefulness of annual financial reports so that users of these 

reports can make more informed economic, social, and political decisions. 

This chapter provides an overview of governmental accounting and financial reporting and the 

current approaches used in compiling financial reports. In particular, it includes the following 

elements: 

governmental Generally Accepted Accounting Principles (GAAP) hierarchy; 

measurement focus and basis of accounting; 

fund structure; 

internal control structure; and 

other issues affecting educational entities. 
24

It is important for governments to provide their constituencies with effective financial 

information presented 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 to adopted budgets; 

compliance with finance-related laws, rules, and regulations; 

efficiency and effectiveness of operations; and 

maintenance of governmental assets. 

Consistency in financial reporting by governments is achieved through the use of accounting 

standards. GASB is the standard-setting authority of GAAP for state and local governments, 

including school districts. In cases where no GASB pronouncement is applicable, other 

authoritative sources of guidance exist. The following section presents a hierarchy of GAAP in 

descending order of authority. The hierarchy was established in Statement of Auditing Standards 

(SAS) 69 (AICPA 1992).

Governmental GAAP Hierarchy 

Category (a) consists of GASB Statements and Interpretations and American Institute of 

Certified Public Accountants (AICPA) and Financial Accounting Standards Board (FASB) 

pronouncements applicable specifically to state and local governmental entities by GASB 

Statements or Interpretations (periodically incorporated into the Codification of Governmental 

Accounting and Financial Reporting Standards, most recently published in 2005 [GASB 

2005a]).

Category (b) consists of GASB Technical Bulletins and AICPA Industry Audit and Accounting 

Guides and Statements of Position made applicable specifically to state and local governments 

by AICPA and approved by GASB. 

Category (c) consists of AICPA Accounting Standards Executive Committee (AcSEC) Practice 

Bulletins made applicable to state and local governments by AICPA and approved by GASB. 

(This category includes the consensus positions of groups of accountants organized by GASB to 

reach a consensus on accounting issues applicable to state and local governmental entities. 

However, GASB had not organized any such groups as of the release date of this handbook.) 

Category (d) includes GASB Implementation Guides published by GASB staff. Also included 

are practices that are widely recognized and prevalent in state and local government. 

In the absence of a pronouncement covered by AICPA 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: 
25

GASB Statements; 

Pronouncements referred to in SAS 69, paragraph 10, categories (a) through (d), on the 

hierarchy of authority for nongovernmental entities when not specifically made applicable to 

state and local governments: 

o FASB Statements; 

o AICPA Issues Papers; 

o statements of the International Accounting Standards Board; 

o pronouncements of other professional associations or regulatory agencies; 

o Technical Information Service Inquiries and Replies included in AICPA Technical 

Practice Aids; and 

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 fund financial statements on the modified accrual basis of accounting (or the accrual 

basis for business-type activities). GASB Statement 34 established additional reporting (the 

government-wide statements) that represents a major shift in the focus and content of 

governmental financial statements. Collecting and reporting the additional financial information 

required by the government-wide statements adds to the complexity of financial reporting 

activities and has significant implications for the traditional focus and basis of accounting used 

in governmental financial statements. 

The government-wide 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. 

Governmental fund financial statements are 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 (GASB 

2005a). Proprietary fund financial statements are 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. Exhibit 1 
26

summarizes the measurement focus and basis of accounting for each reporting element and type 

of fund. 

Exhibit 1. Measurement focus and basis of accounting for financial statements 

Financial statements Measurement focus Basis of accounting 

Government-wide 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 government-wide 

financial statements. The election is made on a fund-by-fund basis; however, consistency in the 

application within a particular fund is encouraged.

Fund Structure 

For governmental entities to ensure the proper segregation of resources and to maintain proper 

accountability, the 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 attain 

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. 

GASB Statement 34 modified the structure of two categories of funds used by local 

governmental entities. Specifically, the following two new types of funds were introduced: 

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 (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 both principal and income 

benefit individuals, private organizations, or other governments. 

GASB Statement 34 eliminated 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. As noted above, a nonexpendable trust fund that supports the 

government's own programs is reported as a permanent fund. It should be noted that an 

expendable trust that supports a government's own programs would be reported as a special 

revenue fund. 
27

In summary, there are three categories of funds as follows: 

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 project, debt 

service, and permanent funds). 

Proprietary funds are used to account for a government’s ongoing 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 quasibusiness 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 private-sector businesses; 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 benefits, as well as other 

postemployment benefits) trust funds, investment trust funds, private-purpose trust funds, 

and agency funds. 

Additional information on governmental fund structure may be found in chapter 5. 

Major Funds 

The concept of major fund reporting was introduced and defined by GASB Statement 34 to 

simplify the presentation of fund information and to focus attention on the major activities of the 

reporting entity. Rather than requiring 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 statement 

and directs the focus to the significant funds of the reporting entity. Major fund reporting is 

applied only to governmental funds (i.e., general, special revenue, debt service, capital project, 

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. 

GASB defines major funds as those meeting the following criteria: 

The 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, etc.) for all funds in that category (governmental funds) or of that type (enterprise 

funds).

The total assets, liabilities, revenues, or expenditures/expenses of the individual 

governmental or enterprise fund are at least 5 percent of the corresponding total for all 

governmental and enterprise funds combined. 
28

Both criteria must be met in the same element (assets, liabilities, etc.) for a fund to be defined as 

major. However, GASB 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. 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 (1995) (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 organization’s objectives will be 

achieved.

Internal control is a process—affected by an organization’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; and 

compliance with applicable laws and regulations. 

As a result, internal control consists of five interrelated components 

control environment; 

risk assessment; 

control activities; 

information and communication; and 

monitoring. 
29

Each of these components is discussed below. 

Control Environment 

The control environment is established on the basis of the attitude of management toward 

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” (AICPA 1995). 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. 

Collectively, various factors affect 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; and 

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. Risk assessment forms a basis for determining how risk should be managed. Risks 

can arise or change as a result of the following factors: 

changes in the operating environment; 

new personnel; 

new or revamped information systems; 

rapid growth; 

new technology; 

new grant programs, building projects, or other activities; 
30

organizational restructuring; 

accounting pronouncements; 

changes in federal regulations; and 

changes in 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. 

Control Activities 

Control activities are the policies and procedures that help ensure that management directives are 

carried out. Control activities can be divided into the following four categories: 

performance reviews; 

information processing; 

physical controls; and 

segregation of duties. 

The application of controls, such as the segregation of duties, is affected to some degree by the 

size of the entity. In small entities, procedures are 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 perform the following functions: 

identify and record all valid transactions; 

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; and 

present properly the transactions and related disclosures in the financial statements. 

Senior management should deliver a clear message to employees about their responsibilities and 

roles 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. 
31

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 duties. 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 the procedures that failed to prevent them. 

Common Types of Control Procedures 

Numerous control procedures and monitoring activities are performed by individuals in 

governmental entities to accomplish particular objectives. All of these controls, however, can be 

classified within one of the basic categories 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. 

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 
32

be physical (e.g., terminals may be 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, and 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 might 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 

knowledgeable and experienced individuals. 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 these records. 

Reconciliation and Comparison of Assets With Records 

Reconciling and comparing assets with accounting records establishes 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 with accounting 

records and the preparation of a bank reconciliation.

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 are 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 computerized transactions. The effectiveness of these 

procedures often depends on general computer controls over information security. 
33

Reviews of Output 

Reviews of output should be performed by school district personnel who have the knowledge 

and experience to identify errors. Such reviews, which can be performed in both computer and 

manual systems, are used to 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 computer 

generated), which list items that could not 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 

management reviews of results. 

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: 

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, where the systems are more complex, and 

where 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. 
34

Information Systems Support. Information systems support includes such functions as 

system software maintenance, database administration, communications and network 

management, and end-user computing, and other functional 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 they are component units of another financial reporting 

entity, are joint ventures of several reporting entities (such as consolidated education agencies), 

or meet the definition in GASB Codification, Section 2100, of a separate reporting entity, many 

school districts prepare separate financial statements to accomplish one or more of the following: 

support state or federal aid applications; 

report financial activities to parent, taxpayer, and citizen groups; or 

aid in preparing financial reports for use in an official statement for bond issuance purposes. 

School districts face a number of unique issues that states, cities, counties, and other local 

governmental entities do not face. These issues often result in internal control and operational 

challenges that district management must address. Some of these issues are as follows: 

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 
35

financial records and reports by nonaccounting 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 local 

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: 

Questions and Answers [GASB 2001], Q. 152; Comprehensive Implementation Guide—

2005: Questions and Answers [GASB 2005b], Q. 239.39). Because the federal agricultural 

commodity program involves purpose restrictions on the use of 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 (GASB Statement 33, Paragraph 14). USDA-donated 

commodities may also pose accounting and reporting problems because of restrictive federal 

rules regulating their use.

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 over 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 the state and national levels, resulting in a number of recent reforms. Several 

educational accountability reforms have required school districts to collect and present 

school-level financial information. Moreover, school-level financial information is often 

related to nonfinancial information (e.g., student achievement data) in published reports and 

used for comparison purposes. Thus, school districts must increasingly focus on ensuring that 

the 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. Reporting requirements are constantly evolving, most notably as a result of GASB 

Statement 34, but also because of even more recent guidance addressing deposit and investment 

risk disclosures, other postemployment benefits (OPEB), and information included in the 

statistical section of Comprehensive Annual Financial Reports. In recent years, governmental 
36

agencies, including school districts, have had to significantly increase their financial reporting to 

include government-wide financial statements as well as traditional fund reporting. Although 

GASB Statement 34 did not change the basic internal control expectations for governments, it, as 

well as other recent changes in GAAP, continues to present new financial reporting challenges 

for school districts.
37

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 

Governmental Accounting Standards Board (GASB) reporting standards. As discussed in the 

previous chapter, GASB Statement 34 and other recent pronouncements have significantly 

modified the basic reporting requirements for governmental entities. The reporting model 

requires the following financial statements and related information: 

Management’s Discussion and Analysis (MD&A) as Required Supplementary Information 

(RSI);

basic financial statements 

o government-wide financial statements; 

o fund financial statements; 

o notes to financial statements; and 

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 required 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 exhibit 2. 

Exhibit 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 

Government-wide financial statements Citizenry and legislators 

Fund financial statements Oversight bodies, legislators, and financial community 
38

The following subsection outlines the major financial statement elements and identifies the 

major requirements for presenting a government’s annual financial statements. Unless otherwise 

noted, it may be presumed that accounting and financial reporting guidelines that specifically 

apply to proprietary or fiduciary funds equally apply to the government-wide level of reporting. 

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 benefit 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; and 

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. 
39

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. Specifically, districts must understand investment risks 

associated with credit ratings of instruments, interest rates, and foreign currency transactions. 

Knowing the factors and variables that affect the market value of each investment will help 

the district determine investment policies and strategies, as well as to understand the external 

financial reporting requirements associated with investment management. 

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 3 months or less qualify under this definition. Items commonly considered cash 

equivalents are U.S. 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 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 nonnegotiable 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 

simplify custody, collection, and disbursements. In certain instances, the pooling of cash and 
40

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 Statements 3 

and 40 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); 

GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for 

External Investment Pools (issued in March 1997); and GASB Statement 40, Deposit and 

Investment Risk Disclosure—an Amendment of GASB Statement No. 3 (issued in March 2003). 

These GASB statements and the entity’s external auditor should be consulted regarding 

disclosure requirements for cash and investments. 

Receivables

Receivables are generally recognized when a service is performed and/or goods are delivered. 

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); and 

interest income. 

The accounting for revenues 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 
41

accrual, that is, when they become both measurable and available to finance expenditures of the 

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 (where 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 nonexchange 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. 

When property taxes are delinquent but expected to be collected, they should be reported in the 

fund financial statements 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. This "60-day rule" is established 

by GAAP and cannot be exceeded, even if the district's collection period is shortly thereafter. 

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. 
42

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 

the general fund or 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 when 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, because 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 (Guide to Implementation of GASB Statement 34 and Related Pronouncements: 

Questions and Answers [GASB 2001], Q23; or Comprehensive Implementation Guide—2005: 

Questions and Answers [GASB 2005b], Q7.35).
43

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 U.S. 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 the following two general areas: 

monitoring and valuation of inventory; and 

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 34 and Related Pronouncements: Questions and Answers [GASB 2001], Q152; or 
44

Comprehensive Implementation Guide—2005: Questions and Answers [GASB 2005b], Q 2.39). 

Because the federal agricultural commodity program involves purpose restrictions on 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 or other postemployment benefit plans is an intangible 

asset, which is recognized by an employer for contributions to a pension plan or other 

postemployment benefit plans, which were greater than pension or other postemployment benefit 

expense. This asset will be amortized against the pension or other postemployment benefit costs 

of the employer when due. (Other postemployment benefits include, but are not limited to, 

health care benefits, life insurance disability, long-term care, or other benefits). 

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. Capital assets are 

tangible or intangible in nature; 

long-lived (have a life longer than 1 year); 

of a significant value at the time of purchase or acquisition; and 

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; 

initial library collections; 

works of art and historical treasures (discussed separately below); 
45

infrastructure (discussed separately below); and 

software.

The emphasis in governmental accounting for capital assets is on control and accountability. 

Accordingly, a variety of data must be maintained to ensure control and accountability over an 

entity’s capital assets such as the following: 

quantity and types of assets; 

location of assets; and 

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 such as the following: 

purchase;

lease-purchase;

construction;

tax foreclosure; and 

gifts and contributions. 

All capital assets acquired in some manner other than as a 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. 
46

Capital Asset Reporting. GASB Statement 34 established reporting requirements for general 

government capital assets, as follows: 

Depreciable capital assets should be reported in the statement of net assets (a 

government-wide 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 should 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, either 

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. 

In addition to the GAAP reporting requirements referred to above, GASB recently issued 

Statement 42, Accounting and Financial Reporting for Impairment of Capital Assets and for 

Insurance Recoveries. Governmental entities, including school districts, are required to report 

the financial effects of capital impairments when the service utility of a capital asset has 

permanently declined significantly and unexpectedly. Though such events are generally rare, 

standardized guidance now exists to assist districts in accounting for and reporting significant 

capital asset impairments. In brief, Statement 42 establishes the following: 

a standardized definition of a capital asset impairment (i.e., “a significant, unexpected 

decline in the service utility of a capital asset” that is deemed to be permanent); 

definitive guidance that impaired capital assets no longer being used should be reported at 

the lower of carrying value or fair value; 

a variety of measurement options for impaired capital assets that are still being used and how 

such losses should be reported in the financial statements; and 

guidelines for reporting insurance recoveries. 
47

Note disclosures associated with capital asset impairments are summarized later in this chapter. 

Capitalization Thresholds, Estimated Useful Lives, and Depreciation Methods for Capital 

Assets. Given the requirements in GASB 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 (i.e., 

within the proprietary funds, fiduciary funds, and government-wide financial statements) rather 

than be recorded as an expenditure at the time of purchase (except for the governmental funds 

where it remains as an expenditure). Many assets having useful lives greater than 1 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 rely on systems other than the 

financial management system for tracking and control purposes (e.g., computer 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; and 

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 (ASBO) International. These resources are typically 

available via state websites. 
48

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. A threshold should only apply if the item has a useful 

life of 1 year or more. It is highly recommended, however, that a threshold for capitalization (or 

for coding purposes outlined in the object codes within Chapter 6: Account Classification 

Descriptions or within appendix E) should not be less that $500. 

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 the following factors:

experience with asset management; 

plans for asset use; 

property management practices; 

asset maintenance practices; and 

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 

websites that contain information about the useful lives of various asset classes in the state. 

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. 

Web searches can render informative policies and recommendations of many governmental 

entities regarding the valuation of assets, the assignment of useful lives, and other similar 

information. Specific accounting or GAAP reporting manuals for each state can be searched, for 
49

example. Weblinks for this information tend to change over time as websites are updated or 

removed. 

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” (GASB 

2005a). Although GASB requires governmental entities to depreciate capital assets (other than 

nonexhaustible assets), the statement does not prescribe a 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., straightline, sum-of-the-years’ digits, or double-declining balance). 

It should be noted, however, that the most common depreciation method used by governmental 

entities, including school districts, is the straight-line method. There are several reasons for this. 

First, it is a simple yet rational method that allocates depreciation based on the capital assets’ 

useful life. Also, it is the primary method that incorporates the potential of salvage value in the 

calculation. Some would argue that the GASB Codification implies a preference for the 

straight-line method within Section 1400.113 simply because it refers to the potential inclusion 

of a salvage value in the depreciation calculation. Thus, while not specifically required for 

governmental entities, it is the most commonly used. An example calculation would be as 

follows:

Exhibit 3. Straight-line depreciation method 

Historical cost of equipment $45,000

Estimated salvage value $5,000

Estimated useful life 8 years 

Annual Depreciation expense calculation ($45,000 – $5,000) / 8 years = $5,000 depreciation 

expense per year 

Thus, Accumulated Depreciation, a contra-asset account, would increase by $5,000 each year. 

Accordingly, the annual depreciation expense would be $5,000. The Accumulated Depreciation 

associated with the capital asset at the end of year 6 would be $30,000 ($5,000 multiplied by 6 

years). The Net Book value of the capital asset at the end of year 6 would be as follows: 

Exhibit 4. Accumulated depreciation method 

Original cost minus salvage value $45,000 – $5,000 = $40,000 

Accumulated depreciation at the end of year 6 $30,000

Net Book value calculation $40,000 – $30,000 = $10,000 
50

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. 

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 (GASB 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; and 

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-Related 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-related 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 
51

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,” in this handbook establishes a number of 

expenditure and asset reporting codes. As is outlined in chapter 6, 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. 

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. Noncapital technology purchases 

should be treated as supplies for reporting purposes (use expenditure object code 650). 
52

E-Rate

E-Rate is not currently addressed within the new accounting codes for technology, as is noted in 

chapter 6 in this handbook. The E-Rate is a discount, ranging from 20 to 90 percent, available to 

schools and libraries for telecommunications services, Internet access, and internal wiring to 

connect classrooms to the Internet (http://www.sl.universalservice.org). The program may also 

involve reimbursements from telecommunications vendors or the Federal Communications 

Commission (FCC) for costs incurred related to these services or access. School districts must 

apply to participate in the FCC program. In 1997, the FCC adopted a Universal Service Order to 

implement the Telecommunications Act of 1996. The level of discount is determined by the 

percentage of students eligible for free or reduced-price lunch under federal guidelines. Libraries 

use free or reduced-price lunch status and an urban/rural classification to determine their 

discount. Schools must develop a technology plan that is approved by an independent agency, 

such as a state department of education or a library agency. A school district or library must 

submit to the Schools and Library Division (SLD) a self-certification of eligibility. Schools and 

libraries pay only the nondiscounted portion of their costs. The vendor of the services and the 

school district enter into a contract. The school district is billed at the discounted rate or may be 

reimbursed by the vendor or the FCC if it pays the full rate. The vendor receives a payment from 

the school district that is based on the discounted rate and from the Universal Service Fund 

administrator. The method of recognition of E-Rate as a financial resource in the accounting 

records may differ depending on whether it is a reimbursement or a discount. As a result, 

inconsistencies exist in current practice regarding the accounting treatment afforded E-Rate. 

NCES suggests as a matter of practice that E-Rate should be netted against the expenditure if it 

was received in the same fiscal year; if it was received in a subsequent fiscal year, it should be 

coded as a Refund of a Prior Year's Expenditure (source code 1980). Because GASB has not 

specifically addressed this issue, definitive guidance is not available at this time. 

Infrastructure Assets 

Infrastructure assets are long-lived capital assets that are normally stationary and can be 

maintained for significantly longer period of time than most other capital assets. 

Infrastructure assets include the following: 

roads;

bridges;

drainage systems; 

water and sewer systems; and 

lighting systems. 

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 either no infrastructure assets or 

an immaterial amount. 
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Reporting Requirements. Infrastructure assets have several reporting requirements as follows: 

In general, governmental entities are required to report all general infrastructure assets 

acquired during the year of GASB Statement 34 implementation and thereafter. 

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.

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 website 

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. 

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 
54

governmental entities to capitalize assets yet avoid the depreciation of their eligible 

infrastructure assets if they meet the following 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 3 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; and 

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 GASB 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 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, explains that governmental fund 

liabilities include those that are due and payable in full when incurred. Additionally, the matured 

portion of long-term 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. 
55

GASB 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 subsections identify 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 services used/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 GASB 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 compensation for future 

absences is attributable to employees’ services already rendered, and 

that 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). 

Sick leave benefits that have been earned but will only be used as sick leave should not be 

accrued as compensated absences. 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 other liabilities. 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 government-wide liability. For proprietary funds, all of the 

liability is a fund liability. 
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Deferred Compensation Plans, Pension Plans, Other Postemployment Plans, and 

Termination Benefits 

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 described 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. 

Many districts provide significant other postemployment benefits (OPEB) such as health care, 

life insurance, disability, and long-term care benefits. Recent changes in GAAP now require 

entities to account and report such plans in a manner similar to the existing reporting 

requirements for pensions, as described above. Such OPEB plans should also be accounted for in 

a pension or other employment benefits trust fund. 

GASB recently issued Statement 47, Accounting for Termination Benefits, which provides 

accounting and financial reporting guidance for governmental entities that offer benefits such as 

early retirement incentives or severance to employees who are involuntarily terminated. In 

general, involuntary termination benefits should be recognized in the period in which the 

government becomes obligated to provide the benefits, which often is different from the period 

in which the benefits are actually provided. Voluntary termination benefits, such as early 

retirement incentives, should be recognized in the period in which the offer is accepted by the 

employees. 

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. Borrowing 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 
57

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 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 government-wide statement of net assets. 

The following subsection 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; and 

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 states:

Bonds, notes and other long-term liabilities (for example, for capital and operating leases, 

pensions, claims and judgments, compensated absences, special termination benefits, 

landfill closure and postclosure care, and similar commitments) 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. (GASB 2005a, section 1500.102) 

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 GASB 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. 
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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 

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, should 

also be reported in the government-wide statements. However, general long-term liabilities of 

the entity should be accounted for and reported only in the government-wide statement of net 

assets.

Types of Debt Instruments 

Debt instruments have different characteristics, terms, and legal authority. 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 either for constructing or acquiring property. The 

security for the financing is the property being acquired or constructed. 

Certificates of participation are a type of installment financing that may also be used either 

for constructing or acquiring property. Typically, more parties than the borrowing 

government and the financing institution are involved in the transaction. The security for 

such financings are commonly the property being acquired or constructed, though some 

arrangements may involve revenue streams as collateral. 

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; 

o the lease contains a bargain purchase option; 

o the lease term is equal to 75 percent or more of the estimated useful life of the leased 

property; or 
59

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 capital 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 should be reported in the government-wide statement of net assets. The initial 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 obligations with respect to the debt. 

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. 

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 “in-substance 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 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. 

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 
60

take advantage of lower interest rates; 

extend maturity dates; 

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 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; and 

the economic gain or loss resulting from the transaction. 
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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 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 

the 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; and 

unreserved (designated and 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 longterm receivables); and/or 

legally earmarked by external parties or entities for a specific future use (e.g., funds with a 

legal restriction on the use of assets, such as 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 are as follows: 

inventories;

debt service; 

endowments; 

prepaid items; 

outstanding encumbrances; 

construction; and 
62

federal and state programs (where the funds have met the available criteria, as well as any 

other provider provisions that may be required, but have not yet been expended). 

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. 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 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 general operating expenditures. 

Prudent financial management requires accumulating a sufficient undesignated, unreserved fund 

balance in the general fund representing expendable financial resources available 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 school board action to earmark the balance for purposes that will be fulfilled at 

a later time, but specific school 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 the following three components: 

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 
63

proceeds or commodities imposed by the USDA. Internal actions through enabling 

legislation (which is legally enforceable) and constitutional provisions may also lead to 

restricted net assets. 

Unrestricted represents the amount of net assets that is not restricted or invested in capital 

assets, net of related debt. 

Government-Wide 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 the following three components: 

invested in capital assets, net of related debt; 

restricted net assets; and 

unrestricted net assets. 

Exhibit 5 defines each component. 

Exhibit 5. Net asset classification 

Invested in capital assets, 

net of related debt 

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. 

Restricted net assets Net assets on which limitations have been placed by creditors, grantors, contributors, 

laws, and regulations. 

Also, internal actions may lead to restricted net assets in some cases such as 

constitutional provisions or enabling legislation that is deemed to be legally enforceable. 

Unrestricted net assets All other net assets not included in the “invested in capital assets, net of related debt” 

category or the “restricted net assets” category. 

Internal designations may not be shown in this statement. 

Revenues

The accounting and financial reporting of revenues within a governmental entity is determined 

by the economic substance of the underlying transactions. Generally Accepted Accounting 

Principles have established criteria for determining the type of transaction based on the 

classification and characteristics of the transaction.

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.
64

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 on 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. 

GASB Statement 33 describes the following 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 one level of government 

provides resources to another level of government and requires the recipient to use the 

resources 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. 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 
65

estimation. To be available, revenues must be subject to collection within the current period or 

be collected after the end of the period but in time to pay liabilities outstanding at the end of the 

current period. 

Revenues in 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 the following 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. 

Government-Wide Reporting 

GASB Statement 34 introduced a number of new reporting concepts for revenues in the 

government-wide statements. Essentially, revenues must be classified as either program or 

general revenues on the statement of activities. The following subsections outline the basic 

reporting criteria established for revenues. 

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:
66

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 different 

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 government-wide statement of activities after program 

revenues have been subtracted from functional expenses. 

Classification of Revenues

Programs are financed from essentially four sources as follows (see exhibit 6): 

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); and 

Type D—the governmental institution itself (primarily investment income). 

Exhibit 6. 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) 
67

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 in 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 in which 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 long-term 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 government-wide financial statements. 

Types of Expenditures and Accounting Treatments 

The major types of expenditures are operating, capital, debt service, and intergovernmental 

charges described as follows:

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 be 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. (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 the general fund or 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 
68

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. 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. 

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) Statement No. 5. Although FASB 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. 
69

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 yearend is usually necessary to reflect the proper amount of expense for the period. 

Government-Wide Statements—Reporting of Expenses 

Governmental entities are required to present their government-wide 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 be specifically identified with a function. Depreciation should be 

included in the direct expenses of that function.
70

“Shared” capital assets. Depreciation should be prorated as a direct expense 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 report 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. 

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, it established new financial reporting requirements for governmental entities by 

restructuring much of the information that entities have presented in the past. Likewise, GASB 

Statement 44, Economic Condition Reporting: The Statistical Section—an Amendment of NCGA 

Statement 1 (issued May 2004), provides guidance on the contents of the statistical section of a 

Comprehensive Annual Financial Report (CAFR). Exhibit 7 is a complete summary of the 

contents of a CAFR. It should be noted that many CAFR schedules and presentations provide 

information beyond that required by GASB Statement 34. 

Table 5 in the 2003 edition of this handbook compared the contents of the CAFR under the new 

reporting model per GASB Statement 34 with the contents of the CAFR under the previous 

model. These comparisons identified key components of each section for an overall comparison 

of the sections between models. The table was not intended to be an item-by-item comparison of 

the models. As all districts should now have implemented the provisions of GASB Statement 34, 

and given that other elements of the CAFR (e.g., the statistical section) have changed since the 
71

2003 edition, the comparative table was not deemed necessary for this 2009 update. However, if 

a comparison between pre-Statement 34 CAFRs and post-Statement 34 CAFRs is of interest, 

refer to the 2003 edition. 
72

Exhibit 7. Contents of a Comprehensive Annual Financial Report (CAFR) 

Contents of the CAFR 

INTRODUCTORY Section 

Table of Contents 

Letter of Transmittal 

Government Finance Officers Association (GFOA) Certificate of Achievement 

Organization Chart 

Principal Officials 

Other Material Deemed Appropriate by Management (if applicable) 

FINANCIAL Section 

Auditor’s Report 

Management’s Discussion & Analysis 

Basic Financial Statements 

Government-Wide 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 Government-Wide Statements 

Proprietary Funds 

Statement of Net Assets 

Statement of Revenues, Expenses, and Changes in Net Assets 

Reconciliation to Government-Wide 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 Required Supplementary Information (RSI) (if component unit does not issue separate 

financial statements) 

Notes to Financial Statements 

General Disclosure Requirements (Similar to Notes to Financial Statements per the pre-Statement 34 reporting model 

as applicable and except as indicated below)

Cash and investment disclosures as modified by Statement 40 

Capital asset impairment disclosures (if applicable) as modified by Statement 42 

Other postemployment benefit (OPEB) disclosures (if applicable) as modified by Statements 43 and 45 

Net assets restricted by enabling legislation (if applicable) as modified by Statement 46 

Additional Disclosures in Summary of Significant Accounting Policies (Paragraph 115 of Statement 34) 

Definition of operating and nonoperating revenues 

Description of government-wide financial statements, including measurement focus and 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 

Statement 20 policy for proprietary funds and government-wide activities 

Additional Disclosures in Summary of Significant Accounting Policies (required by 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 Statement 34) 

o 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
73

Exhibit 7. Contents of a Comprehensive Annual Financial Report (CAFR)—Continued 

Contents of the CAFR

Required Disclosures on Noncapitalized Assets (Paragraph 118 of Statement 34)

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 Statement 34) 

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 1 year 

Information on governmental funds that have liquidated the long-term operating liabilities in the past

Disclosures for Donor-Restricted Endowments (Paragraph 121 of Statement 34) 

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 Statement 34) 

Provision of condensed financial statements in the notes: 

o Types of goods or services provided by the segment 

o Condensed statement of net assets 

o Condensed statement of revenues, expenses, and changes in net assets 

o Condensed statement of cash flows 

Violations and Actions Taken Regarding Finance-Related Legal or Contractual Provisions (Statement 38) 

Variable-rate debt service on debt and lease obligations 

Short-term debt activity 

Disaggregation of receivable/payable balances 

Interfund balances and transfers 

Required Supplementary Information (RSI) Other Than Management’s Discussion and Analysis (MD&A)

Budgetary Comparison Schedules (Paragraphs 130 and 131 of Statement 34; see following pages)

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 

Combining and Individual Fund Statements

Combining statements are limited to nonmajor funds and are not required under Statement 34 

STATISTICAL Section (as modified by Statement 44) 

The statistical section is divided into five categories of information, as follows: 

Financial Trends Information 

Revenue Capacity Information 

Debt Capacity Information 

Demographic and Economic Information 

Operating Information 

The following statistical tables should be included within each of these information categories in the CAFR unless clearly 

inapplicable in the circumstances. Also, unless otherwise noted, 10 years of data should be included for every table. 

Financial Trends Information

Information about net assets 

Information about changes in net assets 

Information about governmental funds 
74

Exhibit 7. Contents of a Comprehensive Annual Financial Report (CAFR)—Continued 

Contents of the CAFR

Revenue Capacity Information

Information about revenue base 

Information about revenue rates 

Information about principal revenue payers (current and previous 9 years) 

Information about property tax levies and collections 

Debt Capacity Information

Information about ratios of outstanding debt 

Information about ratios of general bonded debt 

Information about direct and overlapping debt (current fiscal year) 

Information about debt limitations (current-year calculation for legal debt margin; last 10 fiscal years for all 

other debt limitation information) 

Information about pledged-revenue coverage 

Demographic and Economic Information

Information about demographic and economic indicators 

Information about principal employers (current year and period 9 years prior) 

Operating Information

Information about government employees 

Information about operating indicators 

Information about capital assets 

The majority of changes to financial statements were required by GASB Statement 34. This 

subsection describes the major elements of these financial statements and related disclosures 

addressing the following areas: 

basic financial statements; 

Management’s Discussion and Analysis (MD&A) and other Required Supplementary 

Information (RSI); and 

component units. 

Basic Financial Statements 

Under the new financial reporting model, the basic financial statements include the following: 

government-wide 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. 

Government-Wide Financial Statements 

The purpose of government-wide 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: 
75

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; and 

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 (paragraphs 130 and 131) allows governments to elect to present budgetary 

comparison information as part of the basic financial statements rather than as RSI. 

The government-wide financial statements are as follows: 

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. GASB 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 provides 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. GASB Statement 34 does not alter the requirements for presenting 

component units as established by GASB Statement 14, The Financial Reporting Entity (issued 

in June 1991). The statement of net assets include the following: 

Focus on governmental and business-type activities; 

Reporting on economic resources measurement focus and accrual basis of accounting for all 

assets and liabilities; 

Reporting on general capital assets and general long-term liabilities; and 

Reporting on infrastructure assets. 

As previously mentioned, GASB Statement 34 requires separate columns for the governmental 

activities and business-type activities of the reporting entity in the statement of net assets. 

Definitions within this statement for these activity types include the following: 
76

Government activities 

Activities financed by taxes and intergovernmental revenues and other nonexchange 

revenues;

Activities reported in governmental funds and internal service funds as applicable; and 

Internal clearing account funds (e.g., payroll-clearing accounts), which 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 (fiduciary) funds and, 

therefore, be excluded from the government-wide financial statements. 

Business-type activities 

Activities for which fees are charged to external parties for goods or services; and 

Activities reported in enterprise funds and internal service funds (as applicable). 

GASB 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 are as follows: 

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.

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 

government-wide statements because fiduciary resources cannot be used to support the 

entity’s programs or other services. 

GASB Statement 34 encourages the presentation of assets and liabilities based on their 

relative liquidity. A classified presentation, which distinguishes between current and longterm assets and liabilities, is also acceptable. Definitions of liquidity of assets and liabilities 

include the following: 
77

Assets

Determined by how readily the asset is expected to be converted into cash and 

whether restrictions limit use of resources. 

Liabilities

Based on maturity, or when cash is expected to be used for liquidation; and 

Liabilities whose average maturities are greater than 1 year should be reported in two 

components—the amount due within 1 year and the amount due in more than 1 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; and

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 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 longterm 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. 
78

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. 

Exhibit 8 compares the financial statement types by focus and basis of accounting as well as 

government-wide financial statements which are described in the note disclosure section.

Exhibit 8. Measurement focus and basis of accounting for financial statements 

Financial statements Measurement focus Basis of accounting 

Government-wide 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 the 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. 

Summary of Significant Accounting Policies (Additional Disclosure Requirements). GASB

Statement 34 did not amend the existing general note disclosure requirements, but did require 

additional disclosures. The additional disclosure requirements directly related to GASB 

Statement 34, as well as the significant disclosure requirement changes in recently issued 

pronouncements, include the following: 

a description of the new government-wide financial statements indicating the elements of the 

statement of net assets and the statement of activities, noting the 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 government-wide 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; and 
79

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 

government-wide 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 government-wide and fund financial statements and is oriented more toward the 

relationship between the two. 

The summary of significant accounting policies may also need to be slightly modified to 

incorporate the disclosure requirements of GASB Statement 46, Net Assets Restricted by 

Enabling Legislation—an Amendment of GASB Statement No. 34. Specifically, the amount of the 

district’s net assets at the end of the reporting period deemed to be restricted by enabling 

legislation should be disclosed. 

Required Disclosures for Cash and Investments. As noted earlier, GASB Statement 40, Deposit

and Investment Risk Disclosure—an Amendment of GASB Statement No. 3, modified and/or 

enhanced disclosures required by GASB Statement 3, Deposits With Financial Institutions, 

Investments (including Repurchase Agreements), and Reverse Repurchase Agreements. The 

following summarizes the new requirements that are in addition to the existing relevant guidance 

on required disclosures for cash and investments (refer to GASB Statement 40 for detailed or 

background information regarding these disclosures): 

Investment disclosures should be identified by type of investment. 

Deposit or investment policies should be briefly disclosed. Particular focus should be placed 

on the types of risks to which a district’s portfolio is exposed (i.e., concentration of credit 

risks, interest rate risk, and foreign currency risk). 

Credit risk, concentration of credit risk, interest rate risk, and foreign currency risk, as 

applicable to the district’s portfolio, should be disclosed. 

It should be noted that certain disclosures required by GASB Statement 3 were eliminated by 

GASB Statement 40. Specifically, districts are no longer required to identify custodial credit risk 

for “category 1” or “category 2” deposits and investments, as defined by GASB Statement 3. 

Also, activity disclosures from during the year are no longer required. Likewise, investments are 

only required to be disclosed at their book value, which typically equals the fair value unless 

certain valuation exceptions are met. 

Required Disclosures for Capital Assets. GASB Statement 34 requires disclosure of each major 

class of capital assets, including capitalized collections of works of art, historical treasures, and 
80

similar assets. Capital assets associated with governmental activities should be reported 

separately from those associated with business-type activities, capital assets should be 

depreciated separately from those that are not being depreciated, and the valuation basis should 

be shown 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; 

sales or other dispositions; and 

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. 

In addition to these capital asset disclosures, GASB Statement 42, Accounting and Financial 

Reporting for Impairment of Capital Assets and for Insurance Recoveries, may be applicable to a 

district and thus affect disclosure requirements. The following summarizes the potential 

disclosure requirements: 

a general description of any impairment, including the amount and the financial statement 

classification of the impairment loss if such information is not apparent on the face of the 

financial statements; 

the carrying amount of any impaired capital assets, whether deemed to be temporarily 

impaired or permanently impaired, that are idle as of the end of the reporting period; and 

the amount and financial statement classification of any insurance recoveries that are not 

apparent in the financial statements. 

Required Disclosures for Long-Term Liabilities. The note disclosures should contain 

information about such long-term liabilities as long-term debt instruments (e.g., 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 1 year of the statement date; and 
81

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. Likewise, if a district provides an OPEB plan, as defined earlier in 

this chapter, similar disclosure requirements will apply. Specifically, GASB Statement 43, 

Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans and/or GASB 

Statement 45, Accounting and Financial Reporting by Employers for Postemployment Benefits 

Other Than Pensions, provide accounting and reporting requirements for both OPEB plans and 

employers that participate in OPEB plans. Generally speaking, GASB Statement 43 reporting 

and disclosure provisions would apply to a district that reports an OPEB trust fund (reported like 

a pension and other employee benefits trust fund). GASB Statement 45 reporting and disclosure 

provisions would apply to any districts that provide OPEB to its retirees, whether or not they 

report an OPEB trust fund. Currently, it will be more common for districts that provide OPEB to 

continue you do so on a “pay-as-you-go” basis. Therefore, in practice, GASB Statement 45 will 

have more widespread applicability to districts than GASB Statement 43. It should be noted, 

however, that any OPEB liability that a district may have will in almost all situations only affect 

the government-wide financial statements. Refer to both GASB statements, however, to assess 

their applicability and for the specific disclosure requirements.

Disclosures Relating to Donor-Restricted Endowments. The following information relating to 

donor-restricted endowments is required 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; and 

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 

refers to an individual enterprise fund of a state or local government. GASB Statement 34 

redefines 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 
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account for the activity’s revenues, expenses, gains and losses, assets, and liabilities (GASB 

Statement 37, Paragraph 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 is a segment, but 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); and 

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 financerelated legal or contractual provisions, (2) debt service for debt and lease obligations, (3) shortterm debt obligations, (4) disaggregation of receivable and payable balances, and (5) details of 

interfund balances and transfers. 

Management’s Discussion and Analysis and Other Required Supplementary 

Information

Management’s Discussion and Analysis (MD&A) is part of the Required Supplementary 

Information; 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 between the results reported in the governmental 

activities in the government-wide financial statements and the results reported in the 

governmental funds financial statements (usually focused on the major funds). 
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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 significant or material items only. 

The MD&A is restricted to the following topics, although there is no limit to the amount of 

information that may be presented: 

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 

government-wide 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 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, or have 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. 
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Information that does not address the requirements above should not be included in the MD&A; 

instead, it may be reported as supplementary information or included in the letter of transmittal. 

The entity should ensure that information contained in the MD&A is not duplicated in the letter 

of transmittal. Differences between the MD&A and the letter of transmittal are outlined in 

exhibit 9. 

Exhibit 9. 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

Presented as part of the introductory chapter in the 

Comprehensive Annual Financial Report

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 

Not applicable 

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 2 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 allows 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 on 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 

government are such that exclusion would cause the reporting entity’s financial statements to be 

misleading or incomplete (GASB 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 

o the ability to impose its will on the potential component unit; or

o a relationship of financial benefit or burden with the potential component unit. 

whether or not 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.
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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 

(GASB 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 GASB 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. 

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 the following 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.
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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. 

GASB Statement 39 (Paragraph 7) provides that a discrete presentation must be used for an 

organization that meets the requirements as a component unit under its new criteria. 

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, 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. 

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. 
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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 school 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. 

The basic account structure provides 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. 

The basic structure and codes discussed herein are sufficient to comply with federal reporting 

requirements and those established by Governmental Accounting Standards Board (GASB) 

Statement Concept 34 for fund reporting. Local and state needs and requirements may call for 

additional levels of account details to be added to this basic structure. 

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 monies 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 being 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; and 

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, thereby 

provide for more comparable financial statements among districts. 
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Fund Classifications 

A fund is a separate 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, or changes therein. Current fund classifications are presented below. Each 

classification is presented by a code number followed by a 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. These funds account for the proceeds of specific revenue sources 

(other than trusts or major capital projects) that are legally restricted to expenditure for 

specified purposes. (Unless specifically required by Generally Accepted Accounting 

Principles (GAAP) or other requirements, restricted revenues may also be accounted for 

in the general fund.) Some examples of special revenue funds are 

restricted state or federal grants-in-aid;

expendable trusts that benefit or support the governmental entity; 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. These funds 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. These funds account for the accumulation of resources for, and the 

payment of, general long-term debt principal and interest. 

5 Permanent Funds. These funds 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. These funds 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 account 

for any activity whose principal revenue sources meet any of the following criteria: 
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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; or 

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. These funds account for any activity within the school district that 

provides goods or services to other funds, school district 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.

 Do not use internal service fund revenues or expenditures in federal surveys—unless the 

revenues are generated from outside the school district or education entity. 

Fiduciary Fund Types 

8 Trust Funds. These funds account for assets held by a school district in a trustee capacity 

for others (e.g., members and beneficiaries of pension plans and other postemployment 

benefit [OPEB] plans, external investment pools, or private-purpose trust arrangements) 

and that therefore cannot be used to support the school district’s own programs. Trust 

funds are generally accounted for using 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 postemployment health care plans; refer to GASB 

Statements 26, 27, 43, and 45 for guidance on the recognition of these liabilities). Trust 

funds include pension trust funds (including OPEB plans), investment trust funds, and 

private-purpose trust funds (as described below).

Pension Trust Funds. These funds account for resources that are required to be held 

in trust for members and beneficiaries of defined benefit pension plans, defined 

contribution plans, OPEB plans, or other benefit plans. Typically, these funds 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. These funds 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.

Private-Purpose Trust Funds. These funds account for other trust arrangements under 

which the principal and income benefit individuals, private organizations, or other 

governments. 
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9 Agency Funds. These funds account 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. 
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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 public (including charter) schools: 

regular education, special education, vocational education, other instructional (prekindergarten4

through grade 12), nonpublic school, adult/continuing education, community/junior college 

education, community services, and cocurricular/extracurricular 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 

noninstructional expenditures, it may be necessary to create a designation for those costs that 

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. This 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. Each classification is presented by a code number 

followed by a 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) that have special needs. 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 impairments. 

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 them for broad-based careers and further education beyond high school. 

Vocational and technical programs may include: agriculture and natural resources, 

architecture and construction, arts and communication technology, business and 

administration, education and training, finance, public administration, health science, 

hospitality and tourism, human services, information technology, law and public safety, 

4 Prekindergarten refers to all programs and ages preceding kindergarten, including infant and early childhood 

programs.
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manufacturing, retail/wholesale sales and service, scientific research and engineering, and 

transportation.

400 Other Instructional Programs—Elementary/Secondary. Activities that provide students 

in prekindergarten through grade 12 with learning experiences not included in 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 English is not the primary language spoken. 

Alternative (and At Risk) Education Programs. Activities for students assigned to 

alternative campuses, centers, or classrooms designed to improve behavior and/or 

provide 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. 

Gifted and Talented. Activities for students with gifted and talented abilities, which 

consist 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). 

500 Nonpublic 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 nonpublic 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 2 years of college instruction. If 

the school district is responsible for providing these programs, all costs of the programs 

should be coded here. 
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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. 

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 for civic affairs or to civic 

affairs 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 addressing the 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 Cocurricular and Extracurricular 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.
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Balance Sheets/Statement of Net Assets 

Balance sheet accounts and statement of net asset accounts are used to track financial transactions 

for each fund. Such financial statements report assets, liabilities, and equity accounts only and 

are considered "snapshots" of how these accounts stand as of a certain point in time. Each 

classification is presented by a code number followed by a 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, however, that do not meet the 

definition of an investment (e.g., demand deposits that are interest-bearing) should be 

recorded herein as well. 

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 from changes in the fair value of investments are recorded using 

revenue account 1530. Losses from changes in the fair value of investments are recorded 

using expenditure object code 930. Alternatively, gains and losses may be netted and 

recorded in 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. 
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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. 

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 due 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. 
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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. Expenditures/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 

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 a 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. This account is used 

only in proprietary funds, fiduciary funds, and in the business-type activities of the 

government-wide financial statements. 

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 to 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. This account is used only in proprietary funds, fiduciary funds, and in the 

government-wide financial statements. 

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, assets classified by asset code 211 should result in no depreciation expense. 
97

221 Site Improvements. A capital asset account that reflects the value of nonpermanent 

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. 

 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. 
98

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.

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 for 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 intergovernmental 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 the liability 

has not been paid pending final inspection, 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 1 year or less. This account is used only in proprietary or fiduciary funds, as 

well as in the government-wide financial statements. 
99

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. This account is used only in proprietary or fiduciary funds, as 

well as in the government-wide financial statements. 

451 Loans Payable. Short-term obligations representing amounts borrowed for short periods of 

time, usually evidenced by notes payable or warrants payable. 

452 Lease Obligations—Current. Capital lease obligations that are due within 1 year. 

455 Interest Payable. Interest due within 1 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 1 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, or receivables or revenue collected that do not meet either the availability or 

earnings criteria. 

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. 

500 Long-Term Liabilities. Obligations with a maturity of more than 1 year. These accounts 

should be used only with proprietary and fiduciary funds, as well as at the entity-wide

level of reporting. 

511 Bonds Payable. Bonds (includes general obligation, asset-backed, or revenue-backed) 

that have not reached or passed their maturity date and that are not due within 1 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 
100

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. 

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 1 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 1 year to be paid on 

compensated absences balances. 

561 Arbitrage Rebate Liability. Liabilities arising from arbitrage rebates to the Internal 

Revenue Service (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 1 year from the balance sheet date for 

advances from other funds and certain miscellaneous liabilities, including workers’ 

compensation, self-funded insurance, special termination benefits, 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, including those automatically 

carried over from prior years by law. Separate accounts may be maintained for current 

encumbrances and prior-year encumbrances. 
101

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. This would include funds that have met the 

availability criteria, as well as any other provider provisions that may be required, but 

have not yet been expended. It is recommended that a separate reserve be established for 

each special purpose. Examples of a special purpose is a restricted state or federal program. 

This account may be used with project/recording codes to differentiate various grants-inaid.

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 and fund 

reserves.

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.
102

Classifications of Revenue and Other Financing Sources 

These codes are for recording revenue and other receivables by source. Each classification is 

presented by a code number followed by a 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. 

11105 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. 

11205 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. 

11305 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. 

11405

 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. 

11905 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. 

12005

 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, if the 

money is raised by taxes or other means that are not earmarked for school purposes. This 

classification includes revenue from townships, municipalities, and counties. In a city 

5 Account codes that are necessary for NCES reporting.
103

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. 

12105 Ad Valorem Taxes. Taxes levied for school purposes by a local governmental unit other 

than a 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.

1300 Tuition. Revenue from individuals, welfare agencies, private sources, and other school 

districts and government sources for education provided by the school district. 

5 Account codes that are necessary for NCES reporting.
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13105 Tuition From Individuals. 

13115 Tuition From Individuals Excluding Summer School. 

13125 Tuition From Individuals for Summer School. 

13205 Tuition From Other Government Sources Within the State.

13215 Tuition From Other School Districts Within the State. 

13225 Tuition From Other Government Sources Excluding School Districts Within the 

State.

13305 Tuition From Other Government Sources Outside the State.

13315 Tuition From School Districts Outside the State. 

13405 Tuition From Other Private Sources (other than individuals). 

13505 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. 

14105 Transportation Fees From Individuals.

14205 Transportation Fees From Other Government Sources Within the State. 

14215 Transportation Fees From Other School Districts Within the State. 

14225 Transportation Fees From Other Government Sources Excluding School Districts 

Within the State. 

14305 Transportation Fees From Other Government Sources Outside the State. 

14315 Transportation Fees From Other School Districts Outside the State. 

14405 Transportation Fees From Other Private Sources (other than individuals).

15005

 Investment Income. Revenue from short-term and long-term investments. 

1510 Interest on Investments. All interest revenue on investments in U.S. treasury and agency 

obligations, commercial paper, savings accounts, time certificates of deposit, mortgages, 

5 Account codes that are necessary for NCES reporting.
105

or other interest-bearing instruments. This would also include interest on demand 

deposits.

1520 Dividends on Investments. Revenue from dividends on stocks held for investment. 

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 at 

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. 

15325 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 at 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. 

16005 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 U.S. Department of Agriculture. 

5 Account codes that are necessary for NCES reporting.
106

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. 

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 Programs. Revenue from students from the sale of 

reimbursable costs from after-school programs. 

1620 Daily Sales—Nonreimbursable Programs. Revenue from students or adults for the sale 

of nonreimbursable 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, ParentTeacher Association (PTA)/Parent-Teacher Organization (PTO)-sponsored functions, and 

athletic banquets. 

1650 Daily Sales—Summer Food Programs. Revenue from students from the sale of 

reimbursable costs from summer programs. 

17005*

 District Activities. Revenue resulting from co-curricular and extracurricular activities 

controlled and administered by the school district. Student activity revenues should be 

reported here also, but school districts should have methods internally to track student 

activity revenue separately. (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. 

5 Account codes that are necessary for NCES reporting.
107

17505 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. 

18005

 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.

19105 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. 

19205 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). 

19305

 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). 

19405 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. 

5 Account codes that are necessary for NCES reporting.
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19505 Miscellaneous Revenues From Other School Districts. Revenue from services provided 

other than for tuition and student transportation services. These services could include dataprocessing, purchasing, maintenance, cleaning, consulting, and guidance. 

19515 Miscellaneous Revenue From Other School Districts Within the State. 

19525 Miscellaneous Revenue From Other School Districts Outside the State. 

19605* Miscellaneous Revenues From Other Local Governmental Units. Revenue from 

services provided to other local governmental units, including the state. These services 

could include nonstudent transportation, data-processing, purchasing, maintenance, 

cleaning, cash management, and consulting. 

19705 Revenues From Other Departments in the Agency. Revenues from services provided to 

other funds (i.e., departments within the agency) for services such as printing or dataprocessing. This account is only used with internal services funds. Revenue from private 

individuals, businesses, and associations for services provided should be coded to 1990 

Miscellaneous Local Revenue.

19805 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 the Generally Accepted Accounting Procedures 

(GAAP).

19905

 Miscellaneous. Revenue from local sources not provided for elsewhere, including services 

provided to individuals. 

20005 Revenue From Intermediate Sources.

21005

 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. 

22005

 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. 

28005

 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 

5 Account codes that are necessary for NCES reporting. 
109

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. This code 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. 

29005 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 

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. 

30005* 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. This code 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.

39005

 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 to 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.

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110

41005 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. 

42005

 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. 

43005*

 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. 

45005

 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. 

47005

 Grants-in-Aid From the Federal Government Through Other Intermediate Agencies.

Revenues from the federal government through an intermediate agency. 

48005

 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. 

49005

 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. 

50005

 Other Financing Sources. 

5100 Issuance of Bonds. Used to record the face amount of the bonds that are issued. Short-term 

debt proceeds should not be classified as revenue. When a school district issues shortterm 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. 

51105 Bond Principal. Used to record the face amount of bonds sold. 

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5120 Premium 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 represents an adjustment of the interest 

rate and will be amortized using revenue account 6200. (Discounts on bonds are now 

coded to expenditure object 925 Discount on the Issuance of Bonds.) 

5200 Fund Transfers In. Used to classify operating transfers from other funds of the district. 

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 Revenue Items. 

6100 Capital Contributions. Capital assets acquired as the result of a donation or bequest of 

an individual, estate, other government, corporation, or 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, as well as the government-wide financial 

statements. 

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 significant 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. 
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6400 Extraordinary Items. Used to classify items in accordance with GASB Statement 34. 

Included are transactions or events that are outside the control of the 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 such as: 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. 
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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 noninstructional services, facilities acquisition and construction, and debt service. 

Functions are further classified into subfunctions. Each classification is presented by a code 

number followed by a description. 

10005*

 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, the 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 

(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. Expenditures for full-time 

department chairpersons should be reported in function 2490 Other Support Services – 

School Administration. (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. 

21005

 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 services may include supervision services, counseling services, 

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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. 

22005*

 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 

use of technology for instruction should be included in this code (states may establish a 

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Account codes that are necessary for NCES reporting. 
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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 function 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. Technology used by students in the classroom or that have a student 

instruction focus should be coded to 1000. (Used with all programs 100–900.) 

 It should be noted that E-Rate is not specifically addressed with the accounting codes for 

technology as GASB has not issued applicable accounting and financial reporting 

guidance. Refer to chapter 5 for a broader discussion of E-Rate. 

Student Computer Centers. Activities concerned with supporting and maintaining 

computer centers (outside the classroom) that are established to support the 

instructional environment. These centers may be located in the library or in other 

locations but are not primarily dedicated to student-teacher learning. Computer 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. 
116

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. 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 when staff acquire knowledge and skills to support instructional 

technologies. Technology training for instructional staff should be reported in function 

2213 (instructional staff training). 

2240 Academic Student Assessment. Expenditures for the academic assessment of students 

that are not initiated by the teacher, but by the school district or state education agency. 

(Used with programs 100–400, 600, and 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.) 

23005*

 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 

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activities of the district performed in support of school district meetings. Legal 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 

noninstructional personnel. 

Legal Services. All legal service expenditures should be reported here. See object 820 

for guidance on judgments against the school district.

Other Board of Education Services. Board of education services that cannot be 

classified under the preceding areas of responsibility.

2320 Executive Administration. Activities associated with the overall general administration or 

executive responsibility of the entire school district (used with all programs 100–900). 

Some typical services included in this function code are as follows: 

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. 
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Other Executive Administration. Other general administrative services that cannot be 

recorded under the preceding categories. 

24005*

 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 teaching and 

administrative duties. (Used with all programs 100–900.) 

2490 Other Support Services—School Administration. Other school administration services. 

This function includes graduation expenditures and expenses and full-time department 

chairpersons. (Used with all programs 100–900.) 

25005

 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, investments and funds management. 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. (Duplicating services 

directly related to instruction should be reported in 1000.) (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.) 

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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. 

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 previously established 

goals.

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, e-mail, the Internet and websites, 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 function 2580. (Used with all programs 

100–900.)

2570 Personnel Services. Activities concerned with maintaining efficient personnel for the 

school system. This code includes such activities as recruitment and placement, 

noninstructional 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.

Noninstructional Personnel Training. Activities associated with the professional 

development and training of noninstructional 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 noninstructional personnel. The incremental 
120

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. 

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. 
121

Other Technology Services. Activities concerned with data-processing not described 

above.

2590 Other Support Services—Central Services. Other support services to business not 

classified elsewhere in the 2500 series. (Used with all programs 100–900.) 

26005*

 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 heating, ventilating, and air 

conditioning (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, and grounds 

maintenance. (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). Expenditures for driver’s education programs should be 

coded to 1000 Instruction. (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 in an 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. 

In-service training related to security should be reported in 2570 Personnel Services. (Used 

with all programs 100–900.) 

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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 in an administrative facility, 

or 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. Inservice training related to safety should be reported in 2570 Personnel Services. (Used with 

all programs 100–900.) 

2680 Other Operation and Maintenance of Plant. Operation and maintenance of plant services 

that cannot be classified elsewhere in the 2600 series. (Used with all programs 100–900.) 

27005*

 Student Transportation. Activities concerned with conveying students to and from 

school, as provided by state and federal law. These include trips between home and school 

and trips to school activities. Expenditures for driver’s education programs should be 

coded to 1000 Instruction.

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.) 

29005

 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. 

31005*

 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 

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incidental meals, lunches, or snacks in connection with school activities and food delivery. 

(Used with all programs 100–900). 

32005* 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. The school district bookstore, for example, could be 

charged to this code. Instruction should not be charged here but rather to function 1000. 

Food services should not be charged here but rather to function 3100. (Used with all 

programs 100–900.) 

33005 Community Services Operations. Activities concerned with providing services to the 

community. Examples of this function would be offering parental training or operating a 

community swimming pool, a recreation program for the elderly, or a child care center for 

working parents. Counseling for the parents of students, where the objective is to improve 

the education and well-being of the student should be reported in function 2120 Guidance 

Services. (Used only with program 800.) 

40005

 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 function 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. 

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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. 

50005* 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 1 year of receiving the obligation) is charged to function 2510. 

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.) 

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Object

This classification is used to describe the service or commodity obtained as the result of a 

specific expenditure. Each clarification is presented by a code number followed by a description. 

The nine major object categories are further subdivided. 

1005* 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. (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 are 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. 

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.

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151 Additional Compensation Paid to Teachers. 

152 Additional Compensation Paid to Instructional Aides and Assistants. 

153 Additional Compensation Paid to Substitute Teachers. 

2005* 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. (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 Teachers. 

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. 

2405* 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. 

5 Account codes that are necessary for NCES reporting. 
127

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 retired employees 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. 

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. 

3005*

 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 

5 Account codes that are necessary for NCES reporting. 
128

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 592. 

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 Employee Training and Development Services. Services supporting the professional 

and technical development of school district personnel, including instructional, 

administrative, and service 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. Training for instructional staff should be coded to function 2213.

Training for other staff should be coded to the function of the employee. (Usually used 

with functions 2000 and 3100.) 

340 Other Professional Services. Professional services other than educational services that 

support the operation of the school district. Included, for example, are medical doctors, 

lawyers, architects, auditors, accountants, therapists, audiologists, dieticians, editors, 

negotiations specialists, paying agents, systems analysts, and planners. (Usually used with 

function 2000.) 

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, for example, are 

data-processing services, purchasing and warehousing services, and graphic arts. (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, 2240, 2410, and 2500.) 

352 Other Technical Services. Technical services other than data-processing and related

services. (Usually used with functions 1000–4000.)
129

4005* 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 

internet services 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 1000, 2230, and 2580.) 

440 Rentals. Costs for renting or leasing land, buildings, equipment, and vehicles. 

441 Rentals of Land and Buildings. Expenditures for leasing or renting land and buildings for 

both temporary and long-range use by the school district. (Used with function 2610.) 

442 Rentals 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 and similar rental agreements. 

Include rental vehicles for driver’s education programs here. 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. 

4505*

 Construction Services. Includes amounts for constructing, renovating, and remodeling 

buildings or infrastructure assets paid to contractors. This code should also be used to 

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account for the costs of nonpermanent 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. 

5005

 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.) 

5115 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. Expenditures for the rental of buses that are operated by 

personnel on the school district payroll are not recorded here, but rather under object 442. 

(Used only with function 2700.) 

5125* 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.) 

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. These payments include: payments to students who transport themselves, 

payments to individuals who transport their own children, or payments as reimbursement 

for student transportation on public carriers. Payments for staff and other persons not 

enrolled as students should be recorded under object 580. 

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; data communication services to establish or maintain computerbased 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, and couriers. Include licenses and fees for 

services such as subscriptions to research materials over the Internet. Expenditures for 

5 Account codes that are necessary for NCES reporting. 
131

software, both ‘downloaded’ and ‘off-the-shelf,’ should be coded to objects 650 or 735. 

(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.) 

5615* Tuition to Other School Districts Within the State. Tuition paid to other school districts 

within the state. 

5625 Tuition to Other School Districts Outside the State. Tuition paid to other school districts 

outside the state. 

5635 Tuition to Private Sources. Tuition paid to private schools. 

5645 Tuition to Educational Service Agencies Within the State. Tuition paid to agencies such 

as regional educational service centers for educational services to students. 

5655 Tuition to Educational Service Agencies Outside the State. Tuition paid to agencies 

such as regional educational service centers for educational services to students. 

5665

 Tuition to Charter Schools. Tuition paid to charter schools for services provided in 

accordance with the established charter for that school. 

5675

 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. 

5695 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. 

5 Account codes that are necessary for NCES reporting. 
132

 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 Interagency Purchased Services. 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. (Used primarily with 

function 2000.) 

5915* 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 dataprocessing, purchasing, nursing, and guidance.

5925* 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 dataprocessing, purchasing, nursing, and guidance.

6005

 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. 

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.) 

5 Account codes that are necessary for NCES reporting. 
133

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.). 

626 Gasoline. Expenditures for gasoline and diesel fuel purchased in bulk or periodically 

from a gasoline service station. (Used with functions 1000, 2650 and 2710.) 

629 Other. Expenditures for energy that cannot be classified in one of the preceding 

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. The Government Finance Officers Association (GFOA) recommends that 

software be counted as a capital expense, and object 735, Technology Software, has been 

established for these expenditures. (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 CDs, flash or jump drives, parallel cables, and monitor stands. Software 

costs below the capitalization threshold should be reported here. Licenses and fees for 

services such as subscriptions to research materials over the Internet should be reported 

under 530 Communications. (Used with all functions, but primarily with 2230 and 2580.) 

7005*

 Property. Expenditures for acquiring capital assets, including land, existing buildings, 

existing infrastructure assets, and equipment. Additional guidance regarding the 

classification of property expenditures is provided in figure E-1 (in appendix E) and in 

chapter 5 (under the capital assets and capitalization threshold sections). 

5 Account codes that are necessary for NCES reporting. 
134

7105 Land and Land Improvements. Expenditures for the purchase of land and the 

improvements thereon. Purchases of air and mineral rights, for example, 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.) 

7205*

 Buildings. Expenditures for acquiring existing buildings (expenditures for installment or 

lease payments (except interest) that have a terminal date and result in the acquisition of 

buildings should be assigned to codes 831 and 832), 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.)-- 

7305

 Equipment. Expenditures for initial, additional, and replacement items of equipment, 

such as machinery, furniture and fixtures, and vehicles. 

731 Machinery. Expenditures for equipment usually composed of a complex combination of 

parts (excluding vehicles). Examples are lathes, drill presses, 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. Vehicles for driver’s education should be coded to function 1000.) 

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. Technologyrelated supplies should be coded to object code 650, Supplies—Technology Related. 

(Used with all functions, but primarily with 2230 and 2580.) 

735 Technology Software. Expenditures for purchased software used for educational or 

administrative purposes that exceed the capitalization threshold. Expenditures for 

software that meet the standards for classification as a supply should be coded to object 

code 650, Supplies—Technology Related. (Used with all functions, but primarily with 

2230 and 2580.) 

5 Account codes that are necessary for NCES reporting. 
135

739 Other Equipment. Expenditures for all other equipment not classified elsewhere in the 

730 object series. 

7405* 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, 

and primarily 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. 

8105

 Dues and Fees. Expenditures or assessments for membership in professional or other 

organizations, as well as student fees, such as entry fees to contests. Tuition expenditures 

should be reported in objects 560 through 569.) (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 considered non-court 

judgments and should be recorded under the appropriate expenditure accounts as though 

the bills or debt service had been paid when due. (Used only with function 2310.) 

830 Debt-Related Expenditures/Expenses. 

8315 Redemption of Principal. Expenditures to retire bonds (including current and advance 

refundings) and long-term loans, including lease purchase arrangements. (Used only with 

function 5000.) 

8325 Interest. Expenditures for interest on bonds or notes, including lease purchase 

arrangements. (Used only with function 5000.) 

833 Bond Issuance and Other Debt-Related Costs. Expenses in connection with bond and 

other debt issuance costs, including lease-purchase debt issuance costs. Include both 

amortized and unamortized costs. Included are amortized deferred gain and loss amounts 

in connection with the defeasance of bonds. This code is used in proprietary and 

5 Account codes that are necessary for NCES reporting. 
136

fiduciary funds only, as well as in the government-wide financial statements. (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.) 

835 Interest on Short-Term Debt. Expenditures for interest on short-term debt or 

anticipation notes. (Used only with function 2510 Fiscal Services.) 

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.

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.) 

925 Discount on the Issuance of Bonds. Proceeds from that portion of the sale of bonds 

below their par value. The discount represents an adjustment of the interest rate and will 

be amortized using expenditure object account 834. (Object 925 should only be used 

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. (Used only with function 2510.) 

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, revenue account 

1530 may be used to record all investment gains or losses (reported as a contra revenue). 
137

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. (Used 

only with function 2510.) 

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. (Used only with function 2510.) 

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 

in the statement of activities. Revenue account 5300 is used for governmental funds. 

(Object 940 should only be used with function 2510.) 

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 employees. Some capital asset impairments, as defined by GASB Statement 42, 

may be reported as special items. In the governmental funds, these items should be 

separately captioned or disclosed. 

960 Extraordinary Items. Used to classify items in accordance with Accounting Principles 

Board (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 such as: 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 
138

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.

Each classification is presented by a code range followed by a description. 

010 to190 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 to 390 State Projects. Expenditures that require specialized reporting for categorically 

funded state programs. 

400 to 990 Federal Projects. Expenditures that require specialized reporting to the federal 

government directly or through the state. 

000 Noncategorical. 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. 

The following definitions and correspond with levels of instruction used by the NCES Common 

Core of Data program. States and school districts should use the definitions that are used in their 

jurisdictions. Grade span can also be changed to age span when structuring a nongraded school 

or school district. Each classification is presented by a code number followed by a description. 

10 Elementary. A school organization classified as elementary by state and local practice and 

composed of any span of grades from prekindergarten, kindergarten and grades 1 through 8. 

11 Prekindergarten. 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 in the year immediately preceding first 

grade.

19 Other Elementary. A school organization composed of any span of grades not above 

grade 8, except prekindergarten and kindergarten. 

20 Middle. A school organization composed of at least three grades, usually beginning with 

grade 4 through grade 6 or the equivalent, and usually ending with grade 8 or grade 9. Most 

middle school organizations presume that students finishing middle will go on to secondary 

school.
139

30 Secondary. A school organization comprising any span of grades beginning with the next 

grade following an elementary or middle school, usually beginning with grade 7 through 

grade 10, and ending with or below grade 12. 

37 Elementary and Secondary Combined. A school organization comprising elementary 

and secondary levels of instruction, which may also include kindergarten and 

prekindergarten programs. 

40 Postsecondary. A school organization providing formal instructional programs with a 

curriculum designed primarily for students who have completed the requirements for a high 

school diploma or equivalent. This includes programs of an academic, vocational, and 

continuing professional education purpose, and excludes avocational and adult education 

programs. 

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 education programs and 

other programs for the pursuit of special interests or enrichment. 

42 Community/Junior College. An institution of higher education that usually offers the first 

2 years of college instruction and frequently grants an associate’s 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. 

50 School-wide, for coding expenditures that cannot be clearly assigned to a specific 

instructional level. 

Additional Classifications 

Additional classifications may also be used to distinguish operational units (such as schools and 

school districts), subject matter and job classifications. For guidance on these classifications please 

see the Handbooks Online web site at: http://nces.ed.gov/programs/handbook, or just search for 

“handbook” on the NCES home page at http://nces.ed.gov.
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Chapter 7: Cost Accounting and Reporting for 

Educational Programs 

The accounting structure used in 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 to 

compare 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—the “data user groups” of the school district—extend beyond 

expenditure classifications to school and program reporting. 

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 financial data describing the district and the schools within the district. State 

policymakers use school and program financial data (1) to ensure adequate and equitable funding 

of schools and 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 the financing of particular schools and programs. The media have a 

variety of interests, but frequently seek data regarding equitable funding of schools. School 

boards and administrators require financial data for internal management and to respond 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 identifies direct and indirect costs attributable 

to schools and programs can be developed to provide this additional level of 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 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 science or mathematics programs for grades 9 through 12, 

even though the state reporting element is an aggregate of regular education programs in those 

grades.

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 include expenditures for certain salaries (budgeted on an average cost 

per authorized position) as well as for substitutes, supplies, equipment, utilities, and field trips. 

However, site-based budgeting often excludes some of the major costs of operating a school that 
142

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 school operations 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 is the allocation of district administrative and school board costs. Because the 

provision of educational services through the operation of schools is the only product of a school 

district, the allocation of these costs is necessary for full costing of schools and their programs. 

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. Functions such as instruction have numerous support 

functions, which are not always included in public reporting. This shortcoming could be reduced 

by including subfunctions composed of gifted and talented programs, vocational programs, adult 

programs, or other special programs. However, this would present problems relative to dividing 

teacher and other costs for classes that include students from more than one of these programs 

(e.g., special education students in mainstream classes, secondary and adult students in 

vocational education classes, and English for Speakers of Other Languages [ESOL] students in 

regular education classes).

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. However, if the desired outcome is to 

report 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 (FTE) teachers of the various 

programs. 

In addition to the steps needed to display the full costs of instructional programs, adjustments to 

recorded transactions are necessary to accurately represent school costs. Such adjustments must 

be made for costs that are centrally incurred, but that represent costs for all schools or specified 

schools. Further adjustments are needed for the 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 school reports aggregated into a 

district report. District reports can then be aggregated into a state-level report. 
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Analysis of Reported Costs 

Full program costing requires that costs be accurately determined by a school prior to their 

allocation to its programs. Each school has its own base of cost allocation factors owing to its 

unique combination of programs offered, students attending, and teachers employed. 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 number 

of students in a school or its programs. Other useful factors include the seniority or academic 

rank of teachers and other personnel and varying facilities’ operating costs. These factors 

increase in importance as the scale of analysis is narrowed to a few schools. 

The Program Cost Reporting Structure 

The program cost reporting structure is likely to be based on an adaptation of the cost objectives 

stated in this handbook. A typical reporting structure might be as follows: 

regular education, elementary; 

regular education, middle/junior; 

regular education, high school; 

special education; 

alternative education; 

vocational education, grades 6–12; and 

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, prekindergarten early intervention, before- and after-school programs, and feesupported programs should be accounted for by function or special project unless there is a 

compelling reason to establish them as programs in the reporting 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 an aggregation of the special revenue funds. Some special revenue 

funds, for example food service, may not be appropriate for inclusion in the aggregated special 

revenue fund report. 

Other reconciling items to operating funds include expenditures for debt service and facilities. 
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Elements of Program Costs 

Program cost reporting has the following two central elements: 

identification of direct program costs; and 

attribution of indirect costs to programs on an appropriate basis. 

Program costing is not accomplished solely by the day-to-day transactions as recorded in the 

school district’s records. In fact, such a transaction-based system would be 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 increasingly complex 

under such a system. 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 attributed to programs annually. 

Exhibit 10 presents a sample school-level program cost report format. The columns under the 

heading “Direct instruction costs” provide costs by object for the function “Instruction” in each 

program. The “School indirect” column represents 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 “District indirect” column includes each 

program’s allocation of support function costs that are district-level services, such as 

administrative technology. Note that the lower portion of the report displays a breakdown of the 

“School indirect” costs by function. 
145

Purchased Materials and Other Capital School District

Category Number Salaries Benefits services supplies expenses outlay indirect indirect Total

Regular Education, High 100 $245,858 $67,888 $22,091 $15,219 $2,855 $5,045 $190,145 $44,057 $593,158

Alternative 400 393,810 115,091 34,770 23,955 4,840 7,940 330,474 73,092 983,972

Special Education 200 135,821 38,948 27,137 5,854 1,638 1,940 95,187 22,787 329,312

Vocational Education 6-12 300 92,369 24,459 6,371 4,389 1,028 1,455 57,928 14,926 202,925

Totals $867,858 $246,386 $90,369 $49,417 $10,361 $16,380 $673,734 $154,862 $2,109,367 

Transportation $85,323 $12,075 

School indirect costs are functionally distributed as reported below :

2100 Student Support Services $108,084 2310 Board of Education $0 2510 Fiscal Services $0

2220 Library Services $48,294 2320 Executive Administration $0 2580 Administrative Technology $0

2212 Instruction & Curriculum 2400 School Administration $177,953 2610 Operation of Building $218,282

 Development Services $0 4000 Facilities Acquisition- 2630 Maintenance $118,450

2213 Instructional Staff Training $2,671 Construction $0

Program Direct instruction costs

GENERAL FUND—SCHOOL PROGRAM COST REPORT

SCHL—0041 A High School

Exhibit 10. Program cost report format
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Use of Cost Reporting Software With Existing Data Systems 

In many cases, the information needed to produce accurate school program cost reports resides 

in a district’s existing data systems. 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 are needed to reflect each school’s share 

of costs that are recorded in a host account for practicality. 

Cost reporting software can be developed by the state education agency or school district 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 (FTE) 

teacher by program. The cost reporting software can also interface with student data systems to 

compute FTE students by school and program for indirect cost attribution. Linking the teachers’ 

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 of instruction. 

The major cost of instruction is teacher compensation, which is identified to programs 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—including 

substitute teachers who serve more than one program and paper for reproducing classroom 

materials—attribution factors should be used. “FTE teachers” is an appropriate basis for the 

attribution of substitute teachers as a direct cost to programs. “FTE 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 based on the number of FTE students in each program 

relative to the number of FTE students in all programs. General administration and school 

administration functions should be attributed to programs based on the number of FTE teachers 

in each program relative to the number of FTE teachers in all programs. Operation and 

maintenance of plant services are more appropriately attributed to programs based on the relative 

space that they use.

The attribution factors of students, teachers, and space suggested in the preceding paragraph are 

not an exhaustive listing of valid factors. They can be drawn from existing databases and, 
147

therefore, are economical to generate. More important, they 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, that a two-step process 

should be employed. A further refinement of this concept would be to use a set of simultaneous 

equations to reduce each pool to zero by allocating back and forth among programs and indirect 

cost pools. However, the greater precision of these refinements might 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 only for those schools and programs. 

These special tables include only a subset of the factors included in the general attribution table. 

Examples of such expenditures include those funded by state or federal grants that address 

specified schools and programs and administrative costs focused on selected programs. The cost 

reporting software must be able to select the appropriate schools and programs for each special 

table.

Summary of the Annual Program Cost Reporting Process 

There are three phases in the annual program cost reporting process.

Phase I 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 classroom space used by 

the teacher to 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 is the determination of the schools and programs used 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 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 fund totals for general fund and special revenue funds. 
148

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 calculations of cost as a percentage 

of revenue for each school and program.

Exhibit 11 provides a sample of a cost analysis report that can utilize either school level or 

district level data. This report provides two types of analysis: cost per student, and student/staff 

ratio.

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 many 

purposes for which consumer dollars can be spent. Program cost reporting adds to the workload 

of school district accounting personnel, but advances in technology and the development of 

electronic databases make the provision of program cost data a manageable task for most 

districts.

Exhibit 11. Cost analysis example 

Cost Analysis

Total Total Total Cost per Student/

Program direct school program student in staff

number ADM1 costs costs costs ADM1 ratio

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 

1

 ADM stands for "average daily membership."

Schl—0000 School Board of __________ County
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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. This chapter 

recommends policies and procedures6

 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 presented are minimum controls that local school districts may 

expand on. In addition, since these guidelines are not generally mandated in any jurisdiction, the 

controls imposed in a particular state may be greater or lesser than those that are suggested here.7

This chapter provides a total systems view that 

defines and distinguishes the types of activity funds and their proper classification; 

delineates controls for establishing and maintaining activity funds; and 

provides initial guidance on accounting for and reporting of activity funds, including 

requirements emanating from GASB Statement 34. 

Recommended policies and procedures based on current best practices for operating activity 

funds are also provided. 

Types of Activity Funds and Proper Classification8

Activity funds are established to direct and account for monies used to support cocurricular and 

extracurricular student activities. As a general rule, cocurricular activities are any kinds of 

school-related activities outside the regular classroom that directly add value to the formal or 

stated curriculum. Cocurricular activities involve a wide range of student clubs and 

organizations. Extracurricular activities encompass a wide variety of other district-directed 

activities, typified by organized sports and other nonacademic interscholastic competitions. The 

accounting structure should take into consideration that individual states may have their own 

classifications for cocurricular and extracurricular activities. For example, some states might 

classify music and drama events as well as academic competitions (such as debate) as 

cocurricular, whereas other states might classify these activities as extracurricular. In either case, 

a system of classification for purposes of program cost accumulation and reporting is necessary. 

6

 For an example of a well-constructed student activity funds operating manual, go to 

http://www.planning.leon.k12.fl.us/Procedures/603manual.htm. The 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. 

7

 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); Governmental Accounting Standards Board (2000); 

Association of School Business Officials International (2000).

8

 Detailed account code structures, classifications, and definitions, including new or revised codes, are found in chapter 4. 
150

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. These funds are 

Student activity funds. These 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. Approval to disburse 

monies from the student activity fund may rest with the student organization and its sponsor, 

rather than the board of education. Examples of authorized student activity funds include: 

o Art club 

o Auto club 

o Cheerleaders club 

o Chorus club 

o Class of 2007 

o Class of 2008 

o Class of 2009 

o Debate club

o Drama club 

o Foreign language club 

o Journalism club 

o Marching band 

o National Honor Society 

o Pep club 

o Photography club 

o Student council 

District activity funds. These funds belong to the district, are used to support its 

cocurricular and extracurricular activities, and are administered by the school district. 

Approval to disburse 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 which 

district programs receive support. Examples of authorized district activity funds include:

o Athletics

o Band uniforms 

o Book fair 

o Lyceums 

o Music concerts 

o School plays 

o Special field trips 

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 

recommended that student activity funds be classified as agency (fiduciary) funds and district 
151

activity funds 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, it is the 

responsibility of the school district to account for all activity funds. All activity funds must be 

reported in the school district’s financial statements and are subject to the district’s audits. 

Controls for Establishing and Maintaining Activity Funds9

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 their operation. 

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 exhibit 12): 

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. 

District Treasurer or Chief Financial Officer. The district treasurer or chief financial 

officer should have overall responsibility for accounting for and reporting all funds, 

including district and student activity funds, to the board. This person is also responsible for 

implementing and enforcing appropriate internal control procedures. 

Principal. The principal at each school site should be designated as the activity fund 

supervisor for that site. 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. 

Sponsors. The sponsor of each student organization is responsible for supervising all 

activities of the organization, including approving student activity fund transactions. 

9

 These are broad, minimum controls. Each district 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. 
152

Sponsors should be employees of the district and under the direct control of the activity fund 

supervisor.

Exhibit 12. 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 

General 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 should include at least the following requirements: 

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. 

The activity fund bookkeeper or other 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 those for all other board funds. 

All activity funds should operate on a cash basis, meaning that no commitments or 

indebtedness may be incurred unless the fund contains sufficient cash. 
153

A system of purchase orders and vouchers should be applied to all activity funds. This 

system should require written authorization for payment and should be strictly enforced. 

A system that uses prenumbered receipt forms should be adopted 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 that uses prenumbered 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 prenumbered 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 monetary safety, additional attention should be given to segregating the duties 

related to activity funds. Specifically, three critical duties should be segregated for internal 

control 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 carry out the actual work. It is particularly important to identify, 
154

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, the same 

person generally maintains the activity fund accounting records and prepares 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. It is recommended 

that the principal of the attendance center and someone other than the activity fund bookkeeper 

provide these signatures. 

Reconciling accounting records is an additional important aspect of a system of checks and 

balances for the activity fund. 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 prenumbered forms and receipts, 

purchase orders and vouchers, and a perpetual inventory of prenumbered 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 in the report should include the following: 

beginning cash balance, which should agree with the ending cash balance in the prior 

month’s report; 

cash receipts; 

cash disbursements; 

ending cash balance; 

unpaid purchase orders; and 

unencumbered cash. 

The activity fund bookkeeper should also 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. 
155

Each sponsor should then compare the activity fund bookkeeper’s report with their own 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 

Governmental Accounting Standards Board (GASB) Statement 34 made significant changes in 

financial reporting for all governments, including school districts. Chapters 4 and 5 discuss fully 

the reporting structure established by this accounting standard and its specific requirements, 

including the presentation of government-wide financial statements, fund financial statements, 

and the Required Supplementary Information. The purpose of the government-wide statements is 

to provide a broad overview of the governmental entity. 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 structure, fiduciary activities, 

including student activity funds, are reported only in the fund financial statements. 

The impact of GASB Statement 34 on district and student activity funds is summarized below: 

If student activity funds are classified as agency (fiduciary) funds as recommended, they are 

not reported in the government-wide financial statements. Instead, they 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 government-wide financial statements. 

District activity funds are also 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, therefore, are 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, class ring sales, and a wide 

variety of fundraising activities (magazine sales, candy sales, school pictures, etc.). 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 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 in the district’s books.

School districts and student groups are also increasingly benefited by affiliated organizations 

that support curricular, cocurricular, and extracurricular activities. Affiliated organizations 

include groups such as Parent-Teacher Associations (PTAs), Parent-Teacher Organizations 
156

(PTOs), school foundations, and athletic booster clubs. 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, affiliated organizations may be included in the financial 

statements of the school district as discretely presented component units. (See chapter 5 for a 

discussion of GASB Statement 39.) Whether or not affiliated organizations are included as 

component units, decisions regarding allocation of their contributions should be made on the 

basis of whether the curricular or cocurricular 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 “cash in 

bank asset” account and credit $500 to the “due to student organizations” liability account 

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 (code 481, deferred revenue, a liability account code). Using the estimated proceeds 

from the contract, the district should budget the revenues within a special revenue fund 

during its normal budgeting process. The portion of the $10,000 payment that is not 

advanced should be recorded as revenue from enterprise activities (code 1750) within the 

special revenue fund. It should be noted that it may be appropriate or required by state statute 

for this revenue to be, instead, included in the general fund. The same guidance, though, 

generally applies. 

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 over activity funds, including assurances that 

all transactions are recorded and reported in district financial records. Additionally, at a 
157

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 needed to protect against error and abuse. 
158

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159

References

American Institute of Certified Public Accountants. (n.d.). AICPA Rule 203 of the AICPA Code 

of Professional Ethics. New York: Author. 

American Institute of Certified Public Accountants. (1992). Statement on Auditing Standards No. 

69, The Meaning of Presents Fairly in Conformity With Generally Accepted Accounting 

Principles in the Independent Auditor’s Report. New York: Author. 

American Institute of Certified Public Accountants. (1995). Statement on Auditing Standards No. 

78, Consideration of Internal Control in a Financial Statement Audit: An Amendment to 

Statement on Auditing Standards No. 55. New York: Author.

Association of School Business Officials International. (2000). GASB Statement No. 34: 

Implementation Recommendations for School Districts. Reston, VA: Author. 

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.

Governmental Accounting Standards Board. (1992). Governmental Accounting Board Concepts 

Statement No. 1, Objectives of Financial Reporting. Norwalk, CT: Author. 

Governmental Accounting Standards Board. (1999). Statement No. 34, Basic Financial 

Statements—and Management’s Discussion and Analysis—for State and Local 

Governments. Norwalk, CT: Author. 

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: 

Author.

Governmental Accounting Standards Board. (2001). Guide to Implementation of GASB 

Statement 34 and Related Pronouncements: Questions and Answers. Norwalk, CT: 

Author.

Governmental Accounting Standards Board. (2005a). Codification of Governmental Accounting 

and Financial Reporting Standards, as of June 30, 2005. Norwalk, CT: Author. 

Governmental Accounting Standards Board. (2005b). Comprehensive Implementation Guide—

2005: Questions and Answers. Norwalk, CT: Author. 

Hurst, D., Tan, A., Meek, A., and Sellers, J (2003). Overview and Inventory of State Education 

Reforms: 1990 to 2000 (NCES 2003-020). National Center for Education Statistics, 

Institute of Education Sciences, U.S. Department of Education. Washington, DC. 
160

Miller, L., and McClure, M. (1988). Reliable School Budget Forecasts: Seven Tools That Work. 

School Business Affairs, 54(18).

National Forum on Education Statistics (2007). Forum Guide to Core Finance Data Elements

(NFES 2007-801). National Center for Education Statistics, Institute of Education 

Sciences, U.S. Department of Education. Washington, DC. 

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. 

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. 
A-1

Appendix A—Summary of Account Code Changes Since 2003 
A-2

Summary of Account Code Changes Since 2003 

Exhibit A-1. Changes to account code descriptions 

Balance Sheet Accounts 

Code Description 

730 Unreserved Fund Balance was modified to apply only to excess of assets of a fund over its liabilities and 

fund reserves. 

Program Classification 

Code Description 

200 Special Programs classifications: Gifted and talented programs were moved from Special Programs to 

Other Instructional Programs. 

400 Other Instructional Programs: Gifted and talented programs were moved from Special Programs to 

Other Instructional Programs. 

Revenue and Other Financing Sources 

Code Description 

1700 District Activities: Clarification to include revenue from student activities. 

1970

Revenues from Other Departments in the Agency. This account was clarified by changing the title from 

“Operating Revenues” to “Revenues from Other Departments in the Agency,” and rewriting the 

description.

Expenditure Function Classifications 

Code Description

2230 Instruction-Related Technology modified to make it clearer that technology used by students in the 

classroom or that have a student instruction focus should be coded to 1000 Instruction. 

2510 Fiscal services includes investment activities. 

Object Classification 

Code Description 

330 This code is now for training services to all employees, not just professional staff. 

530 Communications now includes licenses and fees for software services. 

820 Judgments Against the School District was modified to indicate that this object code should only be used 

with function 2310. 

Exhibit A-2. New account codes 

Revenue and Other Financing Sources 

New

Code Description 

1311 Tuition From Individuals Excluding Summer School was added. 

1312 Tuition From Individuals for Summer School was added. 

1322 Tuition from Other Government Sources Excluding School Districts Within the State was added. 

1422 Transportation From Other Government Sources Excluding School Districts Within the State was added. 

Object Classification 

Code Description 

835 Interest on Short-Term Debt was added. 

925 Discount on the Issuance of Bonds was added. 
B-1 

Appendix B—Other Resources 
B-2 

Other Resources 

The following websites and citations provide other information useful to identifying and 

describing federal reporting requirements and more detailed reference material relevant to 

education finance. This publication contains references to websites 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.asp

 Coordinator’s Corner (information on state CCD Data Coordinators): 

 http://nces.ed.gov/ccd/corner.asp

 Resources for CCD Data Coordinators, such as survey forms and instructions: 

 http://nces.ed.gov/ccd/ccResources.asp 

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 website with school district finance data (F-33) 

http://www.census.gov/govs/www/school.html

Financial Standards Accounting Board website for establishing and improving standards of 

financial accounting and reporting

http://www.fasb.org

Government Finance Officers Association website of state/provincial and local finance officers

in the United States and Canada 

http://www.gfoa.org

Governmental Accounting Standards Board website of standards for state and local 

governmental 

accounting and financial reporting 

http://www.gasb.org

National Center for Education Statistics (NCES) website 

http://nces.ed.gov

National Center for Education Statistics, Handbooks Online (Student, Staff and Education 

Institutions

http://nces.ed.gov/programs/handbook

Title I website maintained by the U.S. Department of Education, Office of Elementary and 

Secondary Education 

http://www.ed.gov/about/offices/list/oese
B-3 

American Institute of Certified Public Accountants. (1995). Statement on Auditing Standards No. 

78, Consideration of Internal Control in a Financial Statement Audit: An Amendment to 

Statement on Auditing Standards No. 55. New York: Author. 

Association of School Business Officials International. (2000). GASB Statement No. 34: 

Implementation Recommendations for School Districts. Reston, VA: Author. 

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, S.J. (2005). Governmental Accounting, Auditing and Financial Reporting. Chicago, 

IL: Government Finance Officers Association. 

Governmental Accounting Standards Board. (1999). Statement No. 34, Basic Financial 

Statements—and Management’s Discussion and Analysis—for State and Local 

Governments. Norwalk, CT: Author. 

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: 

Author.

Governmental Accounting Standards Board. (2001). Guide to Implementation of GASB 

Statement 34 and Related Pronouncements: Questions and Answers. Norwalk, CT: 

Author.

Governmental Accounting Standards Board. (2005). Comprehensive Implementation Guide—

2005: Questions and Answers. Norwalk, CT: Author. 

Governmental Accounting Standards Board. (2005). Codification of Governmental Accounting 

and Financial Reporting Standards, as of June 30, 2005. Norwalk, CT: Author. 

Miller, L., and McClure, M. (1988). Reliable School Budget Forecasts: Seven Tools That Work. 

School Business Affairs, 54(18).

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. 
B-4 

U.S. Department of Education, National Center for Education Statistics. (1990). Financial

Accounting for Local and State School Systems (NCES 97-096rev). Washington, DC: 

Author

U.S. Department of Education, Institute of Education Sciences, National Center for Education 

Statistics. (2003). Financial Accounting for Local and State School Systems: 2003 

Edition (NCES 2004-318). Washington, DC: Author
C-1 

Appendix C—Glossary of Acronyms
C-2 

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 

MD&A Management’s Discussion and Analysis 

NCES National Center for Education Statistics 

NPEFS National Public Education Financial Survey 
C-3 

OPEB other postemployment benefits 

PC personal computer 

PTA Parent-Teacher Association

PTO Parent-Teacher Organization 

RSI Required Supplementary Information 

SAS Statement of Auditing Standards 

USDA U.S. Department of Agriculture 

ZBB Zero-Based Budgeting 
C-4 

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D-1

Appendix D—Illustrative Financial Statements for 

an Independent School District 
D-2

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 (RSI)—for a 

hypothetical independent school district. They are illustrative only and should not be considered 

authoritative. The Management’s Discussion and Analysis (MD&A), notes to financial 

statements, and other required contents are not presented; thus, this set of statements does not 

meet the minimum requirements of Generally Accepted Accounting Principles (GAAP) for 

financial statements and Required Supplementary Information. 

Exhibits D-1 and D-2 present alternative approaches for the level of detail displayed for 

governmental activities in the statement of activities. Exhibit D-1 presents only the functional 

categories used in the fund financial statements. Exhibit D-2 illustrates a higher level of program 

detail. Paragraph 40 in Governmental Accounting Standards Board (GASB) 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 D-1 through D-12 are reprinted, with permission, from “Appendix 2: Illustrative 

Financial Statements, Illustration B: Independent School District” in 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 (GASB 2000). The exhibits 

are reprinted from the source document. Refer to the complete source document, available from 

the GASB, for the other exhibits. These exhibits use a generic 20X2 year as the current year 

rather than 20XX to allow identification of a generic 20X1 year signifying amounts for the prior 

generic year. Zero dollars, or no activity, are indicated with a “—“ in the tables. 
D-3

Exhibit D-1. Sample Independent School District Statement of Net Assets: June 30, 20X2 

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 

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 
Exhibit D-2. Sample Independent School District Statements of Activities for the Year Ended June 30, 20X2 

Operating Capital

Charges for Grants and Grants and Governmental Business-type

Services Contributions Contributions Activities Activities Total

Governmental activities:

 Instruction and instruction-related service $5,336,661 $27,631,301 — ($201,106,900) ($201,106,900)

 Instructional and school leadership — 3,783,490 — (29,796,417) (29,796,417)

 Support services—student-based 2,986,172 4,203,974 $1,654,321 (28,467,394) (28,467,394)

 Administrative support services — 1,055,183 — (8,309,966) (8,309,966)

 Support services—non-student-based — 5,465,065 700,145 (51,214,692) (51,214,692)

 Community services — 131,297 — (2,622,049) (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 8,322,833 42,270,310 2,354,466 (334,041,936) (334,041,936)

Business-type activities:

 Food services 4,750,350 16,599,235 — — $753,553 753,553 

Total primary government $13,073,183 $58,869,545 $2,354,466 ($334,041,936) $753,553 ($333,288,383)

154,108,322 — 154,108,322 

16,860,557 — 16,860,557 

176,265,211 — 176,265,211 

7,397,103 301,410 7,698,513 

367,341 — 367,341 

354,998,534 301,410 355,299,944 

20,956,598 1,054,963 22,011,561 

269,433,502 8,846,344 278,279,846 

$290,390,100 $9,901,307 $300,291,407 

Functions/Programs

386,989,545 

33,579,907 

$234,074,862 

5,969,465 

6,555,053 

2,753,346 

 Changes in Net Assets

Net (Expense) Revenue and

Program Revenues

Expenses

37,311,861 

9,365,149 

57,379,902 

20,596,032 

$407,585,577 

General revenues:

 Taxes:

 Property taxes, levied for general purposes

 Property taxes, levied for debt service

 State aid—formula grants

 Unrestricted investment earnings

Net assets—beginning

Net assets—ending

*This amount excludes the depreciation that is included in the direct expenses of the various programs.

Special item —gain on sale of unimproved land

 Total general revenues and special items 

Change in net assets

This statement uses the functional categories for governmental activities that 

are used for governmental funds in Exhibit D-6. Exhibit D-2 illustrates this 

statement using expanded details for governmental activities.

D-4
D-5

 

Exhibit D-3. Sample Independent School District Statement of Activities for Year Ended June 30, 20X2

Capital

Grants and Governmental

Functions/Programs Expenses Contributions Activities Total

Governmental activities:

 Instruction $220,993,099 

—

($189,683,015) ($189,683,015)

6,421,372 — (5,730,590)

 Curriculum and staff development 6,660,391 — (5,693,295) (5,693,295)

 Instructional leadership 9,630,019 — (6,981,576) (6,981,576)

 School leadership 23,949,888 — (22,814,841) (22,814,841)

15,691,486 — (12,866,107)

 Social work services 1,357,181 — (936,784) (936,784)

 Health services 4,074,485 — (3,443,889) (3,443,889)

 Student transportation 10,591,675 $1,654,321 (7,275,587) (7,275,587)

 Extracurricular activities 5,597,034 — (3,945,027) (3,945,027)

 General administration 9,365,149 — (8,309,966) (8,309,966)

 Plant maintenance and operations 49,841,126 — (46,015,581) (46,015,581)

 Security and monitoring services 5,182,416 700,145 (3,389,258) (3,389,258)

 Data processing services 2,356,359 — (1,809,852) (1,809,852)

 Community services 2,753,347 — (2,622,050) (2,622,050)

 Interest on long-term debt 5,969,465 — (5,969,465) (5,969,465)

 Depreciation—unallocated* 6,555,053 — (6,555,053) (6,555,053)

 Total governmental activities 386,989,545 2,354,466 (334,041,936) (334,041,936)

 Business-type activities:

 Food services 20,596,032 — — 753,553

Total primary government $407,585,577 $2,354,466 ($334,041,936) ($333,288,383)

154,108,322 154,108,322

16,860,557 16,860,557

176,265,211 176,265,211

7,397,103 7,698,513

367,341 367,341

354,998,534 355,299,944

20,956,598

269,433,502

$290,390,100 

*This amount excludes the depreciation that is included in the direct expenses of the various programs.

Charges Operating BusinessNet (Expense) Revenue and

 Program Revenues Changes in Net Assets

Services Contributions Activities

 for Grants and type

$5,336,661 $25,973,423 

 Instructional resources and media services — 690,782 

— 2,648,443 

— 967,096 

— 1,135,047 

— 420,397 

 Guidance, counseling, and evaluation services 765,432 2,059,947 

568,733 1,093,034 

— 630,596 

— 1,055,183 

1,652,007 —

— 1,093,013 

— 3,825,545 

— 131,297 

— 546,507 

— —

— —

8,322,833 42,270,310 

$13,073,183 $58,869,545 $753,553 

4,750,350 16,599,235 $753,553 

General revenues: Taxes: Property taxes, levied for general purposes —

 Property taxes, levied for debt service —

 State aid—formula grants —

 Unrestricted investment earnings 301,410

Special item—gain on sale of unimproved land —

 Total general revenues and special items 301,410

 Change in net assets 1,054,963 22,011,561

Net assets—beginning 8,846,344 278,279,846

Net assets—ending $9,901,307 $300,291,407 

See Exhibit D-2 for an illustration of this statement using only the functional 

categories for governmental activities that are also presented in the fund 

financial statements in Exhibit D-6

.
D-6

Exhibit D-4. Sample Independent School District Balance Sheet—Governmental Funds: 

June 30, 20X2

 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. 
D-7

Exhibit D-5. Sample Independent School District Reconciliation of the Governmental

Funds Balance Sheet to the Statement of Net Assets

Total fund balance—governmental funds (Exhibit D-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 D-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 D-1) $290,390,100
D-8

Exhibit D-6. Sample Independent School District Statement of Revenues, Expenditures, 

and Changes in Fund Balances—Governmental Funds: For the Year Ended 

June 30, 20X2

 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, 20X1 54,938,434 3,243,534 1,307,347 59,489,315

Fund balances—June 30, 20X2 $68,927,679 $4,133,180 $1,396,569 $74,457,428 
D-9

Exhibit D-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 D-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 D-9.) 1,224,659

Change in net assets of governmental activities (Exhibits D-2 and D-3) $20,956,598
D-10

Exhibit D-8. Sample Independent School District Statement of Net Assets—Proprietary 

Funds: June 30, 20X2

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
D-11

Exhibit D-9. Sample Independent School District Statement of Revenues, Expenses, and 

Changes in Fund Net Assets—Proprietary Funds: For the Year Ended June 

30, 20X2

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, 20X1 8,846,344 4,797,932 

Total net assets—June 30, 20X2 $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.
D-12

Exhibit D-10. Sample Independent School District Statement of Cash Flows—Proprietary 

Funds: For the Year Ended June 30, 20X2 

 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, 20X1 4,380,184 —

Cash and cash equivalents—June 30, 20X2 $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.
D-13

Exhibit D-11. Sample Independent School District Statement of Fiduciary Net Assets:

June 30, 20X2

Private-purpose

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, 20X2 

Private-purpose 

 Trusts 

ADDITIONS 

Gifts and contributions $61,967 

 

DEDUCTIONS 

Scholarships awarded (36,644) 

 Change in net assets 98,611 

Net assets—July 1, 20X1 598,193 

Net assets—June 30, 20X2 $696,804 

 
D-14

Exhibit D-12. Required Supplementary Information—Sample Independent School District 

Budgetary Comparison Schedule, General Fund: For the Year Ended June 

30, 20X2 

 

 Variance with

 Actual Final Budget—

Budgeted Amounts (Budgetary Positive

 Original Final 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-student-based 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, 20X1 54,938,434 54,938,434 54,938,434 —

Fund balance—June 30, 20X2 $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.
E-1

Appendix E—Criteria for Distinguishing

Equipment From Supply Items 
E-2

Criteria for Distinguishing Supplies From 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 the 

following 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 the items are 

equipment or whether they 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 when 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 the following two basic approaches to distinguish between supplies 

and equipment in the decisionmaking 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. 

Each approach is discussed in the following text.
E-3

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 the following 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 

Documentation containing lists of items identified as supplies or equipment can never be 

comprehensive or exhaustive and quickly become outdated. To resolve the need to differentiate 

supplies and equipment without exhaustive lists, the National Center for Education Statistics 

(NCES) has proposed a set of criteria for distinguishing equipment from supply items, listed in 

priority order. (See exhibit E-1.) 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 and has an original individual cost of at least $500 (or no less than the district's 

capitalization threshold, which may be higher): 

It retains its original shape, appearance, and character with use. 

It does not lose its identity through fabrication or incorporation into a different or more 

complex unit or substance. 
E-4

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. 

Under normal conditions of use, including reasonable care and maintenance, it can be 

expected to serve its principal purpose for at least 1 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, the following criteria should be used, unless the school district is otherwise bound by 

federal, state, or local law. 

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. 
E-5

Exhibit E-1. Criteria for Distinguishing Equipment From Supply Items 

Lasts more than one year 

no 

 yes 

Repair rather than replace 

no 

 yes 

Independent unit rather than 

being incorporated into 

another unit item

no At the first 

 NO, the item is 

 yes declared 

 to be a 

Cost of tagging and inventory SUPPLY. 

small percent of item cost 

no 

 yes 

Exceeds minimum dollar value 

mandated by state or other 

governmental unit (with due 

regard for group control of

some items)

no 

 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). 
E-6

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 following broad categories: 

Little or no control after purchase. Items in this category are of such little value that the 

costs of implementing procedures to safeguard them, monitor their use, or track their location 

and condition are not justifiable. Such items include staplers and wastebaskets. 

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. 

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 

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.
Index-1

Index
Index-2

A

Access Controls ........................................ 31 

Accounting for and Control of Inventory. 43 

Accounting for Commodities.................... 43 

Accounts Payable................................ 55, 98 

Accreted Interest........................................ 99 

Accrued Annual Requirement Contribution 

Liability................................................. 99 

Accrued Interest on Investments Purchased95 

Accrued Interest Receivable. .................... 42 

Accrued Salaries and Benefits ................... 99 

Accumulated Depreciation on Buildings And 

Building Improvements ......................... 97 

Accumulated Depreciation on Infrastructure

............................................................... 98 

Accumulated Depreciation on Machinery and 

Equipment ............................................. 97 

Accumulated Depreciation on Site 

Improvements........................................ 97 

Accumulated Depreciation on Works of Art 

and Historical Collections...................... 97 

Additional Classifications....................... 139 

Adult/Continuing Education Programs ...... 92 

Advance Refunding. ................................. 59 

Agency Funds............................................ 90 

Allowance for Uncollectible Accounts 

Receivable (Credit)................................ 95 

Allowance for Uncollectible Loans (Credit)

............................................................... 95 

Allowance for Uncollectible Taxes (Credit)

............................................................... 95 

Amortization of Premium on Issuance of 

Bonds .................................................. 111 

Analysis of Cost Reports ........................ 148 

Analysis of Reported Costs..................... 143 

Analytical Reviews ................................... 32 

Application of GASB Statement 34 to 

Activity Funds..................................... 155 

Arbitrage Rebate Liability ...................... 100 

Architecture and Engineering .................. 123 

Assets .................................................. 38, 94 

Authorization and Approval ..................... 32 

B

Background ................................................. 5 

Balance Sheets/Statement of Net Assets .. 94 

Basic Financial Statements ....................... 74 

Basis of Capital Assets. ............................ 45 

Blended Component Units........................ 85 

Bond Principal......................................... 110 

Bonds ........................................................ 58 

Bonds Payable ........................................... 99 

Bonds Payable—Current ........................... 98 

Budget Preparation Guidelines ................. 17 

Budgetary Approaches.............................. 13 

Budgetary Objectives................................ 12 

Budgets for Multiyear Construction Projects

............................................................... 21 

Building Acquisition and Construction.... 123 

Building Improvements ........................... 124 

Buildings and Building Improvements ...... 97 

C

Capital Asset Reporting............................ 46 

Capital Assets ..................................... 44, 96 

Capital Contributions............................... 111 

Capital Lease Obligations........................ 100 

Capital Lease Proceeds............................ 111 

Capital Projects Funds .............................. 88 

Capitalization Thresholds ......................... 47 

Capitalized Bond and Other Debt Issuance 

Costs...................................................... 96 

Cash and Investments ............................... 38 

Cash Forecasts .......................................... 20 

Cash in Bank ............................................. 94 

Cash on Hand ............................................ 94 

Cash With Fiscal Agents............................ 94 

Central Services....................................... 118 

Change Cash.............................................. 94 

Classification of Revenues........................ 66 

Classifications of Expenditures .............. 113 

Classifications of Revenue and Other 

Financing Sources............................... 102 

Co-Curricular and Extra-Curricular Activities

............................................................... 93 

Common Types of Control Procedures..... 31 

Community Services Operations ............. 123 
Index-3

Community Services Programs.................. 93 

Community/Junior College Education 

Programs................................................ 92 

Compensated Absences .................... 55, 100 

Compensated Absences—Current. ............ 99 

Component Units ...................................... 84 

Concepts of Program Cost Reporting by 

School ................................................. 141 

Construction Contracts Payable................. 98 

Construction Contracts Payable—Retainage

............................................................... 98 

Construction in Progress............................ 98 

Construction Services .............................. 129 

Contracts Payable ...................................... 98 

Control Activities...................................... 30 

Control Environment ................................ 29 

Controls for Establishing and Maintaining 

Activity Funds..................................... 151 

Criteria for Distinguishing Supplies From 

Equipment............................................E-2 

Criteria for Distinguishing Supply and 

Equipment Items ..................................E-3 

D

Debt........................................................... 56 

Debt Defeasance. ...................................... 60 

Debt Service ............................................ 124 

Debt Service and Miscellaneous............. 135 

Debt Service Funds................................... 88 

Deferred Compensation Plans, Pension 

Plans, Other Postemployment Plans, and 

Termination Benefits ............................ 56 

Deferred Expenditures/Expenses ............... 96 

Deferred Revenues .................................... 99 

Deposits..................................................... 96 

Deposits Payable ....................................... 99 

Depreciation Methods............................... 49 

Depreciation of Infrastructure Assets. ...... 53 

Designated Fund Balance ........................ 101 

Designated, Unreserved Fund Balances. .. 62 

Direct Costs............................................. 146 

Disclosures Relating to Donor-Restricted 

Endowments.......................................... 81 

Discretely Presented Component Units .... 86 

Distinguishing Between Built-In and 

Movable Equipment.............................E-4 

District Activities..................................... 106 

Due From Federal Agencies. .................... 42 

Due From Other Governments or Agencies.

............................................................... 42 

Due From State. ........................................ 41 

Due to/From Other Funds ......................... 55 

E

Educational Specifications Development. 123 

Elements of Program Costs..................... 144 

Enterprise Funds ....................................... 88 

Enterprise Operations .............................. 123 

Equipment Items ......................................E-3 

E-Rate ....................................................... 52 

Estimated Useful Lives............................. 48 

Expenditure Function Classifications ..... A-2 

Expenditures ............................................. 67 

Expenses ................................................... 68 

Extinguishment of Debt ............................ 59 

Extraordinary Items ................................. 112 

F

Facilities Acquisition and Construction ... 123 

Federal Projects ....................................... 138 

Fiduciary Fund Financial Statements. ...... 78 

Fiduciary Fund Types................................ 89 

Financial Forecasting and Planning.......... 19 

Financial Reporting Within a System of 

Education Information............................. 5 

Financial Statement Elements.................... 38 

Financial Statement Presentation and 

Disclosure. ............................................ 40 

Financial Statements .................................. 70 

Food Services.......................................... 105 

Food Services Operations........................ 122 

Function .................................................. 113 

Fund Balance Forecasts ............................ 20 

Fund Balance/Net Assets ........................... 61 

Fund Balances/Fund Net Asset............... 100 

Fund Financial Statements.................. 61, 77 

Fund Financial Statements – Reporting of 

Expenditures/Expenses .......................... 67 

Fund Structure ........................................... 26 

Fund Transfers In..................................... 111 
Index-4

G

General Computer Controls ...................... 33 

General Fund ............................................. 88 

General Policies for The Establishment and 

Operation of Activity Funds ............... 152 

General Revenues ..................................... 66 

Governmental Fund Financial Statements.77 

Governmental Fund Types......................... 88 

Governmental GAAP Hierarchy................ 24 

Government-Wide Financial Statements .. 74 

Statement of Net Assets........................ 63 

Government-Wide Reporting.................... 65 

Government-Wide Statements – Reporting 

of Expenses ........................................... 69 

Grants-in-Aid From the Federal Government 

Through Other Intermediate Agencies. 110 

I

Indirect Costs .......................................... 146 

Information and Communication.............. 30 

Infrastructure ............................................. 97 

Infrastructure Assets ................................. 52 

Instruction................................................ 113 

Interest Payable ......................................... 99 

Interest Receivable on Investments............ 94 

Interfund Accounts Payable....................... 98 

Interfund Accounts Receivable.................. 95 

Interfund Loans Payable ............................ 98 

Interfund Loans Receivable ....................... 95 

Intergovernmental Accounts Payable ........ 98 

Intergovernmental Accounts Receivable ... 95 

Internal Control Structure .......................... 28 

Internal Service Funds............................... 89 

Inventories for Consumption ..................... 95 

Inventories for Resale................................ 96 

Inventory................................................... 42 

Invested In Capital Assets, Net of Related 

Debt..................................................... 101 

Investment Income .................................. 104 

Investments................................................ 94 

Investors and Creditors ............................. 10 

Issuance of Bonds.................................... 110 

J

Judgments Payable .................................... 98 

L

Land Acquisition ..................................... 123 

Land and Land Improvements ................... 96 

Land Improvement .................................. 123 

Lease Obligations—Current ...................... 99 

Level of Instruction................................. 138 

Liabilities............................................. 54, 98 

Line-Item Budgeting................................. 13 

Lines of Authority................................... 151 

Loan Proceeds ......................................... 111 

Loans Payable.................................... 99, 100 

Loans Receivable....................................... 95 

Local Projects ......................................... 138 

Long-Term Liabilities in Governmental 

Funds..................................................... 58 

Long-Term Liabilities in Proprietary and 

Fiduciary Funds. ................................... 57 

M

Machinery and Equipment......................... 97 

Major Changes and Chapter Highlights....... 1 

Major Funds.............................................. 27 

Management’s Discussion and Analysis and 

Other Required Supplementary 

Information ........................................... 82 

Matured Bonds Payable............................. 98 

Measurement Focus and Basis of Accounting

............................................................... 25 

Miscellaneous Revenues From Other School 

Districts ............................................... 108 

Monitoring ................................................ 31 

N

National Forum on Education Statistics, 

Core Finance Data Taskforce Members V 

Non-Categorical ...................................... 138 

Non-Public School Programs.................... 92 

Note Disclosures ....................................... 78 

O

Object...................................................... 125 

Object Classification............................... A-2 

Operating Budget Responsibilities and 

Guidelines.............................................. 17 

Operation and Maintenance of Plant........ 121 
Index-5

Operation of Noninstructional Services ... 122 

Other Accounts Receivable ....................... 95 

Other Current Assets ................................. 96 

Other Current Liabilities............................ 99 

Other Facilities Acquisition and Construction

............................................................. 124 

Other Financing Sources.......................... 110 

Other Instructional Programs—

Elementary/Secondary........................... 92 

Other Issues Affecting Educational Entities34 

Other Long-Term Debt Proceeds............. 111 

Other Long-Term Liabilities.................... 100 

Other Purchased Services........................ 130 

Other Reserved Fund Balance ................. 101 

Other Resources...................................... B-2 

Other Revenue From Local Sources ........ 107 

Other Support Services............................ 122 

Other Types of Debt.................................. 58 

Outcome-Focused Budgeting.................... 16 

P

Payroll Deductions and Withholdings........ 99 

Penalties and Interest on Taxes........ 102, 103 

Pension Assets .......................................... 44 

Performance Budgeting ............................ 14 

Permanent Funds....................................... 88 

Personal Services—Employee Benefits... 126 

Personal Services—Salaries..................... 125 

Petty Cash.................................................. 94 

Planning For Annual and Multiyear 

Construction and Grant Programs.......... 21 

Premium and Discount on Issuance of Bonds

............................................................... 96 

Preparation and Review of Monthly Activity 

Fund Reports ....................................... 154 

Preparation of Construction Project Budgets 

and Related Financing ........................... 22 

Preparation of the Budget Calendar.......... 18 

Proceeds From the Disposal of Real or 

Personal Property................................. 111 

Program..................................................... 91 

Program and Planning (Program) Budgeting

............................................................... 14 

Program Classification............................ A-2 

Program Revenues .................................... 65 

Project/Reporting.................................... 137 

Property................................................... 133 

Property Taxes Receivable. ...................... 41 

Proprietary Fund Financial Statements..... 77 

Proprietary Fund Types ............................. 88 

Purchased Professional and Technical 

Services ............................................... 127 

Purchased Property Services.................... 129 

R

Reasons for Distinguishing Between 

Supplies and Equipment ......................E-2 

Receivables ............................................... 40 

Reconciliation and Comparison of Assets 

With Records ........................................ 32 

Recording of Long-Term Debt in Different 

Types of Funds...................................... 57 

Refund of Prior Year’s Expenditures....... 108 

Regular Elementary/Secondary Education 

Programs ............................................... 91 

Rentals..................................................... 107 

Reporting Requirements. .......................... 53 

Required Disclosures for Capital Assets. . 79 

Required Disclosures for Cash and 

Investments ........................................... 79 

Required Disclosures for Long-Term 

Liabilities. ............................................. 80 

Reserve for Encumbrances ...................... 100 

Reserve for Inventories............................ 100 

Reserve for Prepaid Items........................ 100 

Reserved Fund Balances........................... 61 

Restricted Grants-in-Aid.................. 108, 109 

Restricted Grants-in-Aid Direct From The 

Federal Government ............................ 110 

Restricted Grants-in-Aid From the Federal 

Government Through the State............ 110 

Restricted Net Assets............................... 101 

Revenue for/on Behalf of the School District

..................................................... 109, 110 

Revenue From Community Services 

Activities ............................................. 107 

Revenue From Enterprise Activities........ 107 

Revenue From Enterprise and Alternative 

Sources................................................ 155 

Revenue From Federal Sources ............... 109 

Revenue From Intermediate Sources ....... 108 
Index-6

Revenue From Local Governmental Units 

Other Than School Districts................. 102 

Revenue From Local Sources .................. 102 

Revenue From State Sources ................... 109 

Revenue In Lieu of Taxes........ 108, 109, 110 

Revenues ........................................... 63, 102 

Revenues From Other Departments in the 

Agency ................................................ 108 

Reviews of Output .................................... 33 

Risk Assessment ....................................... 29 

Roles and Responsibilities........................ 17 

S

Salaries and Related Benefits Payable...... 55 

Segment Disclosures................................. 81 

Segregation of Duties Related to Activity 

Funds................................................... 153 

Selecting the Level of Control for Supplies 

and Equipment .....................................E-6 

Site Improvement .................................... 123 

Site Improvements..................................... 97 

Site-Based Budgeting ............................... 16 

Special Items ........................................... 111 

Special Programs....................................... 91 

Special Revenue Funds.............................. 88 

State Projects........................................... 138 

Statement of Activities.............................. 77 

Statement of Net Assets............................ 75 

Student Transportation............................. 122 

Summary of Significant Accounting Policies 

(Additional Disclosure Requirements). 78 

Supplies................................................... 132 

Supply Items ............................................E-4 

Support Services...................................... 113 

Support Services—General Administration

............................................................. 116 

Support Services—Instruction................. 114 

Support Services—School Administration

............................................................. 118 

Support Services—Students .................... 113 

T

Taxes Levied/Assessed by the School District

............................................................. 102 

Taxes Receivable....................................... 95 

Technology Assets.................................... 50 

Textbook Sales and Rentals..................... 107 

The Disadvantages of a Supply/Equipment 

List .......................................................E-3 

The Expanding Need for Greater Detail in 

Financial Reporting............................. 141 

The Program Cost Reporting Structure .. 143 

Transactional Reviews.............................. 33 

Transportation Fees ................................. 104 

Trust Funds................................................ 89 

Tuition..................................................... 103 

Types of Activity Funds and Proper 

Classification ...................................... 149 

Types of Debt Instruments........................ 58 

Types of Expenditures and Accounting 

Treatments............................................. 67 

U

Unamortized Discounts on Investments 

(Credit) .................................................. 94 

Unamortized Gains/Losses on Debt 

Refundings .......................................... 100 

Unamortized Premiums on Investments..... 94 

Unamortized Premiums on Issuance of Bonds

............................................................... 99 

Undesignated, Unreserved Fund Balances.

............................................................... 62 

Unrealized Gains (Losses) on Investments

............................................................. 105 

Unreserved Fund Balance........................ 101 

Unreserved Fund Balances ....................... 62 

Unrestricted Grants-in-Aid .............. 108, 109 

Unrestricted Grants-in-Aid Direct From the 

Federal Government ............................ 110 

Unrestricted Grants-in-Aid From the Federal 

Government Through the State............ 110 

Unrestricted Net Assets .......................... 101 

Use of Cost Reporting Software With 

Existing Data Systems ........................ 146 

Users of School Finance Information ......... 8 

V

Valuation of Infrastructure Assets. ........... 53 

Vocational and Technical Programs .......... 91 

W

Warrants Payable....................................... 98 
Index-7

Works of Art and Historical Treasures....... 97 

Works of Art and Historical Treasures. .... 50 

Z

Zero-Based Budgeting .............................. 15