Audits of State and Local Governments

Chapter 3 GOVERNMENTAL FUNDS: REVENUES AND EXPENDITURES

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

• Recognize how governmental fund revenues are reported.
• Determine how to measure and report revenue from nonexchange transactions.
• Determine how to measure and report governmental fund expenditures.
• Identify which liabilities are excluded from governmental funds.

THE EXCEPTION TO THE EXCEPTION

No, this is not as complex as the income tax code. The general rules for recognizing revenue and expenditures work most of the time. There are a few exceptions to the rules and, in a few rare cases, exceptions to the exceptions.

Governmental funds use a flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when they meet two conditions—measurable and available. Expenditures are recorded when incurred only if the transaction will require the use of current financial resources. This chapter will further explain how revenues and expenditures are recognized and recorded. Certain exceptions to normal recognition rules will also be discussed.

Revenues

Governmental funds receive revenues from a variety of sources. Typical sources of revenue for a local government include: various types of taxes, fees and fines, licenses and permits, intergovernmental charges for services, and investment earnings. Governments report revenues ...