Wiley GAAP for Governments 2013: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments

CAHPTER 6

DEBT SERVICE FUNDS

Introduction

Situations When a Debt Service Fund Is Required or Desirable

Basis of Accounting and Measurement Focus

Expenditure Recognition for Debt Service Payments

Accounting for the Advance Refunding of Long-Term Debt

Crossover Transaction and Refunding Bonds

Summary

INTRODUCTION

Governments often issue long-term debt to finance various governmental projects. Generally, this long-term debt is repaid from a governmental fund called a debt service fund. In some cases, although not legally required, a government may choose to establish a debt service fund to account for the accumulation of resources that will be used for debt service.

This chapter discusses the following topics in relation to the establishment and use of debt service funds:

• Situations in which a debt service fund is required or desirable
• Basis of accounting and measurement focus
• Expenditure recognition for debt service payments
• Accounting for the advance refunding of long-term debt

In addition to the above topics, useful information relative to a government’s issuance and repayment of long-term debt is provided in Chapters 8 and 11.

SITUATIONS WHEN A DEBT SERVICE FUND IS REQUIRED OR DESIRABLE

GASB Statement No. 54 (GASBS 54) Fund Balance Reporting and Governmental Fund Type Definitions describes the purpose of a debt service fund as to account for and report financial resources that are restricted, committed or assigned to expenditure for principal or interest. GASBS 54 provides that ...