 Hello and welcome to this session in which we would look at a governmental accounting exercise, or it could be considered a quasi CPA simulation That's gonna ask you to prepare journal entries that deals with budgetary governmental accounting such as estimated revenue and appropriation So we are gonna be giving the estimated revenue for a government their appropriation revenues Combrances estimated encumbrances actual expenditure increase in appropriation and we're we're asked to Journalize those entries So we're gonna go ahead and journalize each entry separately starting with estimated revenue or the legally Budgeted revenue now. How does it work? Well, the government will meet and they will decide What is their estimated their future revenue based on a budget and here's what the government decided this local government property taxes five million six hundred forty one sales taxes four million eight hundred and thirty License and permit and other miscellaneous expenses. So what entry do we make? This is basically a Budgetary fund balance entry. What entry do we make? Well, we add them all up and if we add them up They will add up to twelve million four hundred and seventy one thousand. What do we do? We debit Estimated revenue control. This is a budgetary account not revenue estimated revenue notice It takes a debit and we credit a budgetary fund balance think of a budgetary fund balance as Equity and that's why it's taken a credit and credit increases on equity So this is the first entry now at the end of the year Once we close the books for this period We have to we have to do the exact opposite and remove this estimated revenue for the same amount Regardless, what the revenue is because this is a budgetary fund balance now. Also, we have an estimated revenue ledger and from the sub ledger We debit the various revenues which are property taxes sales tax license in the Salinas revenue So this is because this is a budget. This is the budget. That's why it's a debited This is estimated revenue ledger not revenue ledger the estimated revenue ledger Now the next thing we're gonna look at is Appropriation now. Yes, great. They estimate the revenues, but the government will also have appropriation and basically the government lives for their Appropriation they want to spend the money, right? That's why they are there So for appropriation they have government general government appropriation five million two hundred eighty five Cultural and recreation four million two hundred and ten. That's pretty generous health and welfare a one million dollar So this is how much they are planning planning to spend on Expenditure remember the government will use expenditure. So now just like we estimated revenues We have an entry for estimated revenues. We have an entry for estimated Expenditure, what are we planning to spend the money on? Well, we debit budgetary fund balance Basically, we reduce the equity the opposite of revenue and we credit an account called Appropriation control appropriation. Basically, what are we planning to to expense basically expenditure? And if we add them up they add up to ten million four hundred and ninety five Now it's a good time to kind of basically show you what's going on with this government Their expenditure are ten million four hundred and ninety five Their estimated revenues are twelve million four hundred and seventy one So they asked they are estimating to bring revenues twelve million four hundred and seventy one And their expenditure estimated to be four million nine hundred four million ten million Four hundred and ninety five so all in all if you just want to kind of take a look at this number real quick And find the difference we find out that they're gonna have a surplus of one million seven hundred and sixty or Access revenues over expenditure of one million nine hundred one million nine hundred and seventy six thousand This is the this is based on the budget this if everything is Realized they're gonna be very happy with this. They should be happy or at least now Let's take a look at the third entry revenue received in cash to receive property taxes of five million five hundred and forty five Well, they estimate it to be Five million six hundred forty one. They were only able to collect five million five hundred and forty five Some people don't pay many reasons. Well, that's that doesn't matter But this is how much they collected in cash sales tax. They estimated four million eight hundred and thirty They were able to collect four million seven hundred less people purchase. Therefore, they have less the sales tax License and permit one point five million the actual was one point seven million. That's good More more people are asking for licenses and permit miscellaneous revenue half a million. They come up at eight hundred thousand Well, now we need to Journalize this entry. Well, it's all received in cash. The government don't have credit really you're gonna debit cash twelve million twelve million seven hundred and forty five thousand which is the total and We're gonna credit revenue control. This is actual revenue notice here. It's revenue control for that much now on the revenue ledger We have a revenue ledger. We're gonna credit property taxes notice. This is the actual revenue This is the revenue that we are Comfortable with revenue, right? This is revenue notice the balance is credit. This is the subsidiary ledger the estimated revenue The balance are the estimated revenues The balance are debit, but again, we're gonna close them eventually with a credit at the end same thing with appropriation Appropriation basically its expenditure. They take a credit first and eventually we will close them to zero at the end of the period So this is the revenue Now, let's take a look at incumbrances. Incumbrances should include salaries and other Recurring items governmental fund 5 million two hundred and seventy five if you remember here in the appropriation when they set up the budget They said we are planning to spend on government general government, which is fire police department other stuff five million two hundred and eighty five Now they are starting to Encumber the account and encumber those amount. What does encumbered mean? It means allocate them said that money aside So no one uses it Okay, so for the government they are in company five million eight hundred five million two hundred and seventy five Which is they are in company ten thousand dollars less for cultural and recreation. They estimated four million two hundred and ten For some reason they're gonna they want to spend more four million six hundred and thirty health and welfare one million and now They're in company nine oh five What does encompass it means they decided this is how we're gonna spend the money? That's all they decided now since they decided Exactly how they're gonna spend it. They're gonna have to say Take this money out of the appropriation Now just basically we know that it's encumbered. It's reserved for these expenditure all in all we reserved 10 million eight hundred and ten This is all in all did we spend the money yet? Not yet We just kind of encumbered it means kind of restricted it so eventually when the purchase take place We have the money available so no one spend the money somewhere else We debit a budgetary fund balance called reserve for encumbrance and we credit an account called Incumbrance control now they have we have an incumbrance ledger and we have we have those amounts as credits in the incumbrance ledger Now after we encumber the amount we encumber the amount. That's the notice its estimates That's how much we estimate Now we spend the actual money on general government. The estimated was five million two hundred and seventy five We actually end up spending five million two hundred and eighty five for cultural and recreation So here we spent ten thousand dollars less than when we estimated But basically it was based on the original the original budget was five million eight Two hundred and eighty five we end up spending that much. I don't know why in cut why we encumbered less Maybe we thought we're gonna get a discount. Maybe we made a mistake. We don't know For cultural and recreation We encumbered four million six hundred and thirty we end up only actually spending four million Six hundred and ten and health and welfare we estimated to be nine oh five We spent a little bit less and the original budget was even a million So somehow there's a lot of savings in health and recreation So once you spend the money actual actual expenditure takes place the first thing we have to do is we have to reverse The encumbrance what does that mean? It means whatever we did in transaction for when we set up the encumbrance We have to do the opposite. Let me show you in this entry, which is entry five We debited budgetary fund balance credit and conference control and in in Transaction for we debited budgetary fund balance and we credited in conference control So four and five are the opposite So the first thing you do when you when when when the transaction takes place when the actual transaction takes place For this estimate you have to reverse it you have to reverse Whatever you did you have to reverse then we have to account for the actual expenditure now We account for the actual expenditure if we add up all the expenditure the actual expenditure here the they add up to ten million seven hundred and eighty five Thousand so notice we estimated ten million eight hundred and ten the actual expenditure was ten million 785 so we debit expenditure not expense those are basically in quote expense for a regular business but expenditure for governmental accounting so we have an expense expenditure control and we credit cash for this much and we since they are expenditure they take a debit and the subsidiary ledger 10 million 785 now the government decided to have a budget revision they decided to increase the appropriation for general government 140,000 and cultural and recreation for 110 just basically they met and he said you know what we are going to kind of spend a little bit more on we need a little bit more money so we increased appropriation what entry do we make we debit budgetary fund balance we just want to spend more money in total of 250 which is 140 and 110 and we credit appropriation control 250 again this amount goes under the appropriation ledger as a credit those are expenditure but future expenditure but they take a credit in the budgetary accounts once we are done we're gonna look at a comparison and see the numbers what what it looks like and by the way just FYI our beginning January 1st fund balance is 753 and we had no outstanding and conferences so let's take a look at our comparison the original amount for this is starting with revenues the original amount for property taxes was five million six hundred and forty one we did not change this budget the actual amount that we receive was five million four hundred and forty five we had an unfavorable variance we received less cash from property taxes sales tax was four million eight hundred and thirty the final budget was four million eight hundred and thirty we did not change the budget the actual amount was four four point seven million we again we received one hundred and thirty thousand dollar less the original budget for license and permit was one point five million we did not change it the final budget was one point five million the actual amount was one point seven this is good it was a favorable variance of two hundred thousand miscellaneous revenue the original amount was half a million we did not change the amount and the actual amount was eight hundred thousand somehow we received three hundred thousand dollars in miscellaneous budget miscellaneous revenue we need to know what's going on there now for total revenue this is the original the final the actual and overall we had a favorable variance of two hundred and seventy four thousand and when it comes to expenditure and incombrances we have the general government the original was five five million two hundred and eighty five however if you remember we increased it by one hundred and forty thousand you know why I don't know why we kind of increase the budget we wanted to spend more the actual spending was five million two hundred and eighty five notice this one hundred and forty we did not really spend it so we thought we're gonna spend it we did not spend it we put it in the budget I don't know maybe somebody made that decision cultural and recreation originally we budgeted four million two hundred and ten then we increased it by one hundred and ten in transaction six the actual spending actually even spent more on cultural and recreation therefore it was unfavorable variance because I'm sorry it was yes unfavorable variance because we even spent more four million six hundred and ten health and welfare we budgeted originally a million we did not change the budget the actual amount was eight hundred and ninety therefore we have a favorable variance because it's less expenditure now total expenditure the net is and let's go from let's do the total the original ten million four hundred ninety five we increased the expenditure the actual amount was ten million seven hundred and eighty five was even worse than we expected and it hope it all has to do with cultural and recreation somehow we we over spent on that and the net amount is negative 40 unfavorable now again the access the original was one million seven hundred and one million nine hundred and seventy six then the the final one was one million seven hundred and twenty six because we remember we increase our expenditure by two fifty that's gonna reduce the excess of revenue over expenditure and the actual was one million nine hundred and sixty not bad overall we have a positive variance the fund balance at the beginning was seven thirty five plus the change equal to the ending 1726 plus the change equal to the ending same concept here so hopefully you went through this whole exercise and see the effect of numbers what should you do now go to our lectures and look at additional multiple choice true false exercises that's gonna help you with governmental accounting whether you are a CPA candidate or an accounting student governmental accounting is an extremely important concept good luck study hard and of course stay safe