Government and Not For Profit Accounting: Concepts and Practices, 6th Edition

LEARNING OBJECTIVES

After studying this chapter you should understand:

• The modified accrual basis of accounting for expenditures and the rationale for differences between that basis and the full accrual basis
• How each of the following expenditures are accounted for:
  • Wages and salaries
  • Compensated absences
  • Pensions
  • Claims and judgments
  • Acquisition and use of materials and supplies
  • Prepayments
  • Acquisition and use of capital assets
  • Interest and principal on long-term debt
  • Grants
• The different types of interfund activity and how they are reported
• What constitutes other financing sources and uses
• The overall rationale for, and limitations of, the fund statements

In the previous chapter, we addressed the question of when revenue should be recognized in governmental funds. We turn now to the other side of the ledger and consider how expenditures should be accounted for.

Like revenues, expenditures can be of two types: exchange and nonexchange. Our discussion of revenues centered mainly upon nonexchange revenues, as most governmental fund revenues are of that type. By contrast, our discussion of expenditures focuses primarily on exchange expenditures. Most governmental fund expenditures result from exchanges—the acquisition of goods and services for cash or other assets. This is not to say that governments do not engage also in nonexchange transactions. Just as governments receive ...