Module 1 Financial Accounting and Reporting - Texas Education

1. Financial Accounting and Reporting Update 14 A MODULE OF THE TEXAS EDUCATION AGENCY FINANCIAL ACCOUNTABILITY SYSTEM RESOURCE GUIDE Published by Texas Education Agency Austin, Texas January 2010 Note: This document is formatted primarily for use on the Internet. Certain underlined passages may appear in the paper format representing hyperlinks to sites on the Internet that are provided for the benefit of individuals reading this document in an electronic format. January 2010 Texas Education Agency - Resource Guide . . . . . Financial Accounting and Reporting . i Contents 1. Financial Accounting and Reporting ......................................................................... 1 1.1 Financial Accounting Structure .......................................................................... 1 1.1.1 GAAP and Legal Compliance ................................................................ 2 1.1.2 Legal Requirements ................................................................................ 3 1.1.3 Accounting Principles and Policies

........................................................ 4 1.1.4 Fund Accounting .................................................................................. 16 1.1.4.1 Description of Fund Types ................................................................... 17 1.1.4.2 Description of Fund Code Categories and Capital Asset and Long-Term Liability Accounts ................................................................................ 18 1.1.5 Basis of Accounting ............................................................................. 23 1.1.6 Encumbrance Accounting .................................................................... 25 1.1.6.1 Encumbrance Liquidation .................................................................... 26 1.1.6.2 Treatment at Year End ......................................................................... 26 1.1.7 Interfund Transactions .......................................................................... 27 1.1.8 Nonexchange Transactions ................................................................... 28 1.1.9 Accounting Changes ............................................................................. 40 1.1.9.1 Accounting Treatment .......................................................................... 41 1.1.9.2 Correction of Errors .............................................................................. 42 1.1.10 Hierarchy of GAAP for State and Local Governments ........................ 43 1.1.11 GASB Statement Summaries ............................................................... 45 1.1.12 Change in Fiscal Year .......................................................................... 53 1.2 Financial Statement Elements .......................................................................... 58 1.2.1 Cash and Investments ........................................................................... 58 1.2.1.1 Definitions ............................................................................................ 59 1.2.1.2 Public Funds Investment ...................................................................... 61 1.2.1.3 Financial Statement Presentation and Disclosures ............................... 64 1.2.1.4 Interest Income and Accrued Interest Receivable ................................ 70 1.2.1.5 Depository Contracts ............................................................................ 71 1.2.2 Accounts Receivable ............................................................................ 71 1.2.2.1 Accounting for Receivables in Different Fund Types .......................... 72 1.2.2.2 Property Taxes ...................................................................................... 72 1.2.2.3 Allowance for Bad Debts ..................................................................... 74 1.2.2.4 Other Receivables ................................................................................. 75 1.2.3 Inventory .............................................................................................. 77 1.2.3.1 Monitoring and Valuation of Inventory ............................................... 78 1.2.3.2 Inventory Accounting ........................................................................... 79 1.2.3.3 Inventory Reporting ............................................................................. 80 1.2.3.4 Physical Inventories ............................................................................. 81 1.2.4 Capital Assets ....................................................................................... 82 1.2.4.1 Capital Asset Recording ....................................................................... 83 1.2.4.2 Basis of Capital Assets ......................................................................... 85 1.2.4.3 Property Accounts for Capital Assets .................................................. 86 . . . . . ii . Financial Accounting and Reporting . Texas Education Agency - Resource Guide January 2010 1.2.4.4 Accounting for Maintenance, Additions and Betterments ....................88 1.2.4.5 Accounting for Impairment of Capital Assets .......................................89 1.2.4.6 Depreciation ..........................................................................................94 1.2.4.7 Control of Capital Assets ......................................................................96 1.2.4.8 Inventories of Capital Assets .................................................................99 1.2.4.9 Reporting of Capital Assets ...................................................................99 1.2.4.10 Intangible Assets .................................................................................100 1.2.5 Liabilities .............................................................................................101 1.2.5.1 Accounts Payable ................................................................................102 1.2.5.2 Payroll Liabilities ................................................................................102 1.2.5.3 Arbitrage Rebate Liabilities ................................................................113 1.2.5.4 Accrued Expenses ...............................................................................114 1.2.5.5 Due to/from Other Funds ....................................................................115 1.2.5.6 Due to Student Groups ........................................................................116 1.2.5.7 Contractor Withholding .......................................................................116 1.2.6 Debt .....................................................................................................116 1.2.6.1 Recording of Long Term Debt in Different Types of Funds ..............118 1.2.6.2 Types of Debt Instruments ..................................................................120 1.2.6.3 Debt Refundings ..................................................................................126 1.2.6.4 Other Disclosure Requirements ..........................................................131 1.2.7 Risk Financing and Related Insurance Issues .....................................131 1.2.7.1 Accounting for Self-Insurance, Contingencies, Claims and Judgments133 1.2.7.2 Accounting of Self-Insurance and Loss Contingencies in Different Types of Funds ....................................................................................134 1.2.7.3 Participation in Public Entity Risk Pools ............................................135 1.2.7.4 Participating in a Public...

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