First, why have accountability and control been so important in the traditional accounting for state and local governments? Second, how has the dual system of financial statements impacted the financial reporting of state and local governements?

Discussion
First, why have accountability and control been so important in the traditional accounting for state and local governments?

Second, how has the dual system of financial statements impacted the financial reporting of state and local governements?

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522 Chapter 11
Fund Financial S tatements-Expenditures for Expense and Capital Asset by
Governmental Fund Activity
Expenditures-Electricity…………………………………. 1,000
Vouchers(orAccounts)Payable 1,000
To record charges covering the past three months.
Expenditures-Ambulance………………………………… 70,000
Vouchers(orAccounts)Payable 70,000

To record acquisition of ambulance.

Within the fund financial statements for the governmental funds, the timing of the
recognition of expenditures and revenues follows the modified accrual basis of account-
ing. For expenditures, modified accrual accounting requires recognizing a claim against
current financial resources when it is created. If a claim is established in one period to
be settled in the subsequent period using year-end financial resources, the expenditure
and liability are recorded in the initial year. However, as discussed earlier, the maximum
length of time for the change in current financial resources to occur-often 60 days into
the subsequent period-should be disclosed. Thus, if equipment is received on the last
day of the year but payment will not be made until 60 days later, recording of the expen-
diture is likely to be made in the first year, depending on the recognition period utilized
by the government.

In fund statements, a governmental fund records both operating costs such as sala-
ries and rent and the entire cost of all buildings, machines, and other capital assets as
expenditures. No net income figure is calculated for these funds; thus, computing and
recording subsequent depreciation is not relevant to the reporting process and is omitted
entirely. It has no effect on current financial resources.

For the govemment-wide financial statements, all economic resources are measured.
Consequently, the previous two transactions are recorded in this second set of state-
ments as follows, with depreciation subsequently recorded for the ambulance as time
passes:

Government- Wide Financial Statements-Recording Expense and Capital Asset
UtilitiesExpense……………………………………….. 1,000
Vouchers(orAccounts)Payable 1,000
To record electricity charges for the past three months.
Ambulance 70,000
Vouchers(orAccounts)Payable 70,000
To record acquisition of new ambulance.
Reporting Capital Assets and Infrastructure
Understand the reporting of One result of recording only expenditures within the fund statements for the govemmen-
capital assets, supplies, and tal funds is that virtually no assets are reported other than current financial resources
frepaid “pens“ byaState °r such as cash, receivables, and investments. All capital assets are recorded as expen-
ocal government.
ditures at the time of acqu1s1tion w1th that balance closed out at the end of the fiscal
period. Note that the balance sheet in Exhibit 11.3 shows no buildings, school facilities,
computers, trucks, or other equipment as assets.

Prior to the development of government-wide financial statements, only a minimum
amount of information was available about capital assets. A listing was included in
the financial statements for informational purposes. Even then, the inclusion of infra-
structure items was optional. Infrastructure includes roads, sidewalks, bridges, and
the like that are normally stationary and can be preserved for a significant period of
time. A bridge, for example, with proper maintenance might last for more than 100
years. To save time and energy, many governments simply did not maintain records of

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