Proprietary Fund (Nonexpendable Fund)

PENDAHULUAN

            Fund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments. In this system, a fund is a self-balancing set of accounts, segregated for specific purposes in accordance with laws and regulations or special restrictions and limitations.

            The label, fund accounting, has also been applied to investment accounting, portfolio accounting or securities accounting – all synonyms describing the process of accounting for a portfolio of investments such as securities, commodities and/or real estate held in an investment fund such as a mutual fund or hedge fund. Investment accounting, however, is a different system, unrelated to government and nonprofit fund accounting.

            Nonprofit organizations and government agencies have special requirements to show, in financial statements and reports, how money is spent, rather than how much profit was earned. Unlike profit oriented businesses, which use a single set of self-balancing accounts (or general ledger), nonprofits can have more than one general ledger (or fund), depending on their financial reporting requirements. An accountant for such an entity must be able to produce reports detailing the expenditures and revenues for each of the organization's individual funds, and reports that summarize the organization's financial activities across all of its funds.

            A school system, for example, receives a grant from the state to support a new special education initiative, another grant from the federal government for a school lunch program, and an annuity to award teachers working on research projects. At periodic intervals, the school system issues a report to the state about the special education program, a report to a federal agency about the school lunch program, and a report to another authority about the research program. Each of these programs has its own unique reporting requirements, so the school system needs a method to separately identify the related revenues and expenditures. This is done by establishing separate funds, each with its own chart of accounts.

Proprietary Fund (Nonexpendable Fund)

            Proprietary funds are presented using the economic resources measurement focus and the full accrual basis of accounting. They are reported the same way as in the government-wide financial statements. However, internal service funds should be reported as a fund type (aggregated) in a separate column. Major enterprise funds are reported in separate columns and nonmajor enterprise funds are aggregated in a single column. A combined total column for all enterprise funds should be presented. By reporting the internal service funds separately from the proprietary funds, the information in the “Totals” column in these statements flows directly to the Business-Type Activities column on the government-wide statement of net position. The interfund eliminations within enterprise funds are not required.

            Proprietary funds may choose instead of depreciating infrastructure, the modified approach.

Proprietary Fund Statement of Net Position (or Balance Sheet)

Governments have the option of two reporting formats:

1) Statement of Net Position format	Assets plus deferred outflows of resources, less liabilities, less deferred inflows of resources, equals net position, or
2) Balance Sheet format	Assets plus deferred outflows of resources equals liabilities plus deferred inflows of resources plus net position.

            The assets and liabilities should be presented in a classified format. This requires reporting assets and liabilities as either current or noncurrent. A one-year cut-off is a typical when determining if assets are expected to be realized in cash or consumed and liabilities are expected to be paid. Current assets include: cash available from current operations, receivables, inventories, prepaid expenses and investments, etc. Current liabilities include accounts payable, notes payable, amounts due to other funds, current portion of long-term debt, current portion of compensated absences, claims and judgments, etc.

            Restricted assets are reported as a separate line item. The following assets are required to be reported as restricted:

• Assets that are restricted for use other than current operations.

• Assets that are restricted for the acquisition or construction of noncurrent assets.

• Assets that are restricted for sinking funds or for the liquidation of long-term debts.

            Most of the restricted assets are noncurrent. However, restricted assets that will be used in current operations (e.g., certain grants, etc.) should be reported as current assets. Liabilities payable from restricted assets may be reported separately.

Net position should be reported in three components:

1. Net investment in capital assets,

2. Restricted (listed by major restrictions),

3. Unrestricted.

            If amounts reported for enterprise funds difference  from those reported on government-wide financial statements in the business-type activities column, the government should present a summary reconciliation on the bottom of the proprietary funds statement of net position (or balance sheet).

Statement of Revenues, Expenses, and Changes in Fund Net Position

There is a specific format for this statement:

Operating revenues (detailed)									$
		Total operating revenues
Operating expenses (detailed)
		Total operating expenses
Operating income (loss)
Nonoperating revenues and expenses (detailed)
		Income before other revenues, expenses, gains, losses and
		transfers
Capital contributions (grants, developer, and other), additions to
	permanent and term endowments, special and
	extraordinary items (detailed), and transfers
		Increase (decrease) in net position
Net position – beginning of period
Net position – end of period									$

            This is an all-inclusive format. All transactions (including capital contributions) that affect net position (i.e., balance sheet transactions) should be included. No amounts may be reported as direct addition to net position or as balance sheet transactions only. All transactions, including capital contributions, additions to permanent funds, equity transactions involving joint ventures have to be reported in the statement of changes.

            Revenues should be reported by major source. All revenues should be reported net of discounts and allowances (they should be disclosed in parenthesis or in the notes to the financial statements). Uncollectible amounts should not be reported as expense but as adjustments to revenue.

            Revenues and expenses should distinguish between operating and nonoperating. Governments should establish their own policy for defining operating and nonoperating revenues and expenses and the policy should be disclosed in the notes to the financial statements.

            Although there is not a specific definition for the operating or nonoperating revenues, the following revenues should be considered as nonoperating:

•         Operating grants and contributions and grants and contributions that are not restricted to either operating or capital functions.

•         Property or other taxes.

•         Exchange-like transactions that are restricted for capital or financing purposes.

•         Interest and dividends and realized and unrealized gains or losses on investments.

•         Interest expense, debt issue expenses, and premium or discount on debt.

            The government has to always consider the nature of the activity being reported before classifying the revenues on financial statements.

            Both operating and nonoperating expenses can be reported either at detailed (object) or function level.

            The government should present a summary reconciliation on the bottom of the statement of changes if the amounts reported for enterprise funds differ from those reported on government-wide financial statements in the business-type activities column.

PENUTUP

Proprietary funds include the following.

• Internal service funds are used for operations serving other funds or departments within a government on a cost-reimbursement basis. A printing shop, which takes orders for booklets and forms from other offices and is reimbursed for the cost of each order, would be a suitable application for an internal service fund.
• Enterprise funds are used for services provided to the public on a user charge basis, similar to the operation of a commercial enterprise. Water and sewage utilities are common examples of government enterprises.
• Proprietary funds, used for business-like activities, usually operate on an accrual basis. Governmental accountants sometimes refer to the accrual basis as "full accrual" to distinguish it from modified accrual basis accounting