Reporting Requirements for Annual Financial Reports of State Agencies and Universities
General Accounting
Fund Balance/Net Position
Governmental Funds
Introduction
GASB 54 significantly changed the focus of fund balance reporting in two major areas — fund balance classifications and fund type definitions. For more information on the fund type definitions, see Governmental Funds.
Fund balance is reported from the perspective of the underlying resources within fund balance. GASB 54 components of fund balance identify constraints on how resources can be spent and the sources of those constraints. Agencies should note that there is not a one-to-one crosswalk from the old fund balance classifications to the GASB 54 fund balance classifications. GASB 54 does not affect government-wide or accrual-based statement presentations and it does not change the amount of total fund balance on any fund statements.
Governmental fund balance classification is reported in Note 32 — Governmental Fund Balances. For the recommended format, see Note 32 — Fund Balances Sample.
On financial statements, the normal balance (debit or credit) of an account must be displayed. If the balance of an account is opposite of what it normally is, it can be an indicator of an issue that needs correction or restatement. For example, a debit payable might need to be reclassified to a receivable; moved to another fund where appropriations were actually expended or restated because the prior year payable was overstated.
The normal balance of a fund balance account is a credit. However, depending on the net activity from the statement of activities, the fund balance account can be a debit or a credit at year end. This is another reason why fund balance accounts need analysis.
The ending fund balance on the statement of activities must agree with the total fund balance reported on the balance sheet/statement of net position. During the USAS GL close process, the net activity from the statement of activities is closed to fund balance or net position based on the GAAP fund type (FT) of a D23 fund. Different FTs close to different fund balance or net position accounts. Take this into consideration when allocating fund balance to other fund equity accounts. For more information, see Allocation of Fund Balance or Net Position.
SIRS Reports
SIRS reports are presented on a pre-closing basis. This means that the Total Activity amount on the balance sheet/statement of net position must be added to the closing fund balance account to arrive at the true fiscal year-end balance.
On SIRS reports, it is possible to have Total Activity on the statement of activities without a fund balance account on the balance sheet/statement of net position, especially for new funds.
The closing fund balance account used depends on fund type. See How GL Accounts Close for Specific GAAP Fund Groups for more information.
The Total Activity amount on the balance sheet/statement of net position must be the same amount as the Net Activity amount on the statement of activities. Ensure to run both SIRS reports at the same fund level.
SIRS Desk Review reports DR108 through DR114 assist in different aspects of fund balance analysis. The total activity from the statement of activities on the Desk Review reports is labeled as Income Summary.
USAS Financial Reports
DAFRs are presented on a post-closing basis. Therefore, the fund balance/net position amounts reported in the DAFR8580 Balance Sheet – Governmental and Proprietary Fund Types (FFS) represent the true ending balances.
USAS General Ledger Accounts
The following GL accounts are used to record fund balances in USAS.
| Classification | USAS GL Acct. No. | USAS GL Account Name |
|---|---|---|
| Nonspendable | 2300 | Fd Bal – NonSpnd for Permanent Fund Corpus |
| Nonspendable | 2301 | Fd Bal – NonSpnd for Inventory |
| Nonspendable | 2302 | Fd Bal – NonSpnd for Prepaid Items |
| Nonspendable | 2303 | Fd Bal – NonSpnd for LT Loans, Contracts and Receivables |
| Restricted | 2310 | Fd Bal – Restricted |
| Committed | 2315 | Fd Bal – Committed |
| Assigned | 2320 | Fd Bal – Assigned |
| Unassigned | 2325 | Fd Bal – Unassigned |
Fund Balance Classifications
The fund balance classifications discussed below apply to all governmental funds — general funds, special revenue funds, debt service funds, capital projects funds and permanent funds.
| Classification | Definition | Example |
|---|---|---|
| Nonspendable | Amounts that cannot be spent because they are either:
|
Corpus (or principal) of a permanent fund, consumable inventories, merchandise inventories, prepaid items, long-term portion of loans and receivables (general revenue fund 0001 only).* |
| Restricted | Amounts with constraints placed on the use of resources that are either:
|
Restrictions in place by the Texas Constitution, the federal government, debt covenants and/or external parties. Debt service funds (FT03) have a restricted fund balance. |
| Committed | Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the state’s highest level of decision-making authority (the Texas Legislature) are reported as committed fund balance. Those committed amounts cannot be used for any other purpose unless the Texas Legislature removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. |
Restrained for use by state legislative action (such as a law becoming state statute). Many of the general revenue dedicated funds have a committed fund balance. |
| Assigned | Amounts constrained by the agency’s intent to be used for specific purposes that are neither restricted nor committed are reported as assigned fund balance. | Restrained for use by agency governing board and/or agency head. |
| Unassigned | This is the residual classification for the general fund. The net resources of the general fund in excess of nonspendable, restricted, committed and assigned fund balances are classified as unassigned fund balance (for example: all fund balance accounts have a credit balance). In all other governmental funds, the excess of nonspendable, restricted and committed fund balances over total fund balance (a deficit fund balance) is classified as unassigned. Note: With the exception of the stabilization fund, the general revenue fund (fund 0001) is the only fund that can report unassigned fund balance GL 2325 with a credit balance. |
The stabilization fund (“the rainy day fund”) has an unassigned fund balance if it does not meet the criteria of specific conditions. |
| * The long-term portion of loans and receivables can be classified as nonspendable in general revenue fund 0001 only. For all other governmental funds, classify the long-term portion of loans and receivables as restricted, committed or assigned, depending on the loan or receivable constraints. | ||
Classifying Fund Balance Amounts
- Determine the nonspendable fund balance before classifying other fund balance components.
- Determine the spendable components (restricted, committed, assigned and unassigned) by using the Comptroller’s Manual of Accounts and relevant state statutes to analyze the funds. In the state of Texas, the majority of funds are created by the Texas Legislature for a specific purpose.
- An example of a specific purpose is fund 0341, established by the Health and Safety Code section 437.0125(e), which states that Money in the fund may only be used to inspect facilities and to enforce and administer this chapter.
- The agency must look up the statute or code that created the agency’s specific fund.
- In the uncommon situation where funds are created for multiple purposes, the agency determines the spendable components based on the categorization of inflows and the agency’s spending policy on whether restricted or unrestricted amounts are spent first when both are available. If no policy exists for the order of the use of unrestricted resources, the default order is:
- Committed
- Assigned
- Unassigned
- Restrictions can be imposed by enabling legislation, provided the enabling legislation meets the following criteria:
- The legislation authorizes the agency to levy, assess or charge external resource providers.
–AND– - The legislation includes a legally enforceable requirement that the resources be used for a particular purpose specified in the same legislation (that is, the same legislation that creates the revenue source also creates the use restriction).
- The legislation authorizes the agency to levy, assess or charge external resource providers.
The enabling legislation criteria are not met if any one of the following conditions is present. In these instances, classify the fund balance as committed rather than restricted.
- The use restriction is imposed unilaterally by legislation separately from the legislation that created the revenue source.
- The allocation or earmarking of existing resource inflows is made by separate legislation.
- The use of constraints is not legally enforceable.
- Amounts may be redeployed for other purposes with appropriate due process.
There are currently no fund balances for agencies that meet the “restricted by enabling legislation” requirements.
Allocating Fund Balance
Keep in mind the following when allocating fund balances:
- Review at the D23 fund level.
- Fund balance closes to different fund balance accounts depending on fund type.
- Allocate for nonspendable fund balance accounts first. The nonspendable fund balance cannot have a debit balance. Nonspendable fund balance accounts offset asset accounts (such as prepaid items).
- Any reallocation of fund balance from one fund balance account to another (such as from unassigned to assigned, with the exception of nonspendable fund balances) cannot leave the unassigned fund balance account with a debit balance.
- Restricted, committed or assigned fund balance accounts cannot have debit balances.
- If the total of all fund balance accounts within a fund is a debit balance, allocate the debit fund balance to unassigned fund balance GL 2325. All other fund balance accounts must then have a zero balance (except for nonspendable fund balance accounts).
- If a governmental fund allocates fund balance to a combination of restricted, committed or assigned fund balance, then each of these accounts must have credit balances; there cannot be a mixture of debit and credit balances.
- Any reallocation of fund balance to restricted, committed or assigned fund balance accounts cannot be greater than the total fund balance.
- Only the general revenue fund 0001 can report unassigned fund balance GL 2325 with a credit balance.
- Most GR dedicated funds in FT01 present a credit fund balance as committed instead of unassigned.
- All other governmental funds must present fund balances at either the default fund balance account (if not in FT01) or as assigned fund balance GL 2320 at the very least.
Fund Balance Allocation Examples
The following examples illustrate the classification of fund balance in governmental funds. If you have any questions or need further clarification of fund balance requirements, contact your financial reporting analyst.
Example 1a
General revenue fund 0001 has a balance in prepaid items GL 0295 that is new this year, for $1,000.00. Total activity from the statement of activities has a credit balance. Since general revenue fund 0001 is in FT 01, USAS will close to the unassigned fund balance GL 2325.
Note: Prepaid Items GL 0295 is shown for illustrative purposes only.
| GL Accounts | Before Allocation | Allocation Entry | After Allocation |
|---|---|---|---|
| Prepaid Items | $ 1,000.00 | NA | $ 1,000.00 |
| Total-Asset Accounts | $ 1,000.00 | NA | $ 1,000.00 |
| Nonspendable for Prepaid Items | $ 0.00 | (1,000.00) | $ (1,000.00) |
| Unassigned | (100.00) | 1,000.00 | 900.00 |
| Total — Fund Balance Accounts | $ (100.00) | $ 0.00 | $ (100.00) |
Nonspendable for prepaid items GL 2302 must offset the amount in GL 0295 and net to zero, even if the resulting unassigned fund balance will become a debit balance.
The total of all fund balance accounts must remain the same after any allocation (the allocation entry nets to zero).
Debit unassigned fund balance GL 2325 for $ 1,000.00 and credit nonspendable for prepaid items GL 2302 for $ (1,000.00). The total of all fund balance accounts remains $ (100.00).
Note: Since unassigned fund balance GL 2325 has a debit balance, no other allocations to fund balance accounts may be made. Nonspendable fund balance accounts are the exception.
Example 1b
Now assume the same scenario, but the amount in prepaid items GL 0295 is $50.00.
| GL Accounts | Before Allocation | Allocation Entry | After Allocation |
|---|---|---|---|
| Prepaid Items | $ 50.00 | NA | $ 50.00 |
| Total-Asset Accounts | $ 50.00 | NA | $ 50.00 |
| Nonspendable for Prepaid Items | 0.00 | (50.00) | $ (50.00) |
| Unassigned | (100.00) | 50.00 | (50.00) |
| Total — Fund Balance Accounts | $ (100.00) | $ 0.00 | $ (100.00) |
Debit unassigned fund balance GL 2325 for $50.00 and credit nonspendable for prepaid items GL 2302 for $ (50.00). The total of all fund balance accounts remains $ (100.00).
Note: Since unassigned fund balance GL 2325 has a credit balance, allocations to other fund balance accounts may be made.
Example 2a
A GR dedicated fund 1111 in FT01 has a deficit income summary (current year expenditures exceeded current year revenues). Since the GR dedicated fund is classified as FT01, USAS closes income summary to the unassigned fund balance GL 2325. This results in a debit balance in GL 2325. However, the total of all fund balance accounts is a credit balance.
Because assigned fund balance GL 2320 with a credit balance cannot be reported with an unassigned fund balance GL 2325 with a debit balance, and an unassigned fund balance GL 2325 can only be presented if the total fund balance is a debit balance — record an adjustment in USAS to credit the unassigned fund balance GL 2325 of $ (75.00) and a debit of $ 75.00 to the assigned fund balance GL 2320.
There are no nonspendable fund balance accounts to allocate, and this is not general revenue fund 0001.
| GL Accounts | Before Allocation | Allocation Entry | After Allocation |
|---|---|---|---|
| Restricted | $ (100.00) | NA | $ (100.00) |
| Committed | (150.00) | NA | (150.00) |
| Assigned | (175.00) | 75.00 | (100.00) |
| Unassigned | 75.00 | (75.00) | 0.00 |
| Total — Fund Balance Accounts | $ (350.00) | $ 0.00 | $ (350.00) |
Assigned fund balance GL 2320 is adjusted first since there is a hierarchy to fund balance allocations: restricted, committed and assigned. The total of all fund balance accounts remains $ (350.00).
Example 2b
Using the same scenario as Example 2a, except the assigned fund balance GL 2320 is insufficient to absorb the entire debit amount in unassigned fund balance GL 2325.
| GL Accounts | Before Allocation | Allocation Entry | After Allocation |
|---|---|---|---|
| Restricted | $ (100.00) | NA | $ (100.00) |
| Committed | (150.00) | 25.00 | (125.00) |
| Assigned | (175.00) | 175.00 | 0.00 |
| Unassigned | 200.00 | (200.00) | 0.00 |
| Total — Fund Balance Accounts | $ (225.00) | $ 0.00 | $ (225.00) |
Allocate the unassigned fund balance by reclassifying $ 175.00 to the assigned fund balance. This leaves a remainder of $ 25.00 in the unassigned fund balance and $ 0.00 balance in assigned fund balance.
Allocate the remaining $ 25.00 in unassigned fund balance by reclassifying the amount to the committed fund balance. The total of all fund balance accounts remains $ (225.00).
Example 3
In the scenario below, rather than a credit total fund balance as in Example 2a, the income summary for the current fiscal year creates a debit total fund balance:
| GL Accounts | Before Allocation | Allocation Entry | After Allocation |
|---|---|---|---|
| Restricted | $ (100.00) | $ 100.00 | $ 0.00 |
| Committed | (150.00) | 150.00 | 0.00 |
| Assigned | (175.00) | 175.00 | 0.00 |
| Unassigned | 500.00 | (425.00) | 75.00 |
| Total — Fund Balance Accounts | $ 75.00 | $ 0.00 | $ 75.00 |
Reduce the debit unassigned fund balance $ 500.00 by allocating the credit balances from the other fund balance classifications.
Even though this is not general revenue fund 0001, the debit balance is reported as unassigned fund balance GL 2325. The total of all fund balance accounts remains $ 75.00.
Example 4a
If an agency has a fund that does not close to the unassigned fund balance, the fund balance allocation process is different.
In this example, the income summary for special revenue funds (FT02) closes to restricted fund balance GL 2310. If the total fund balance has a credit balance, the unassigned fund balance GL 2325 is not allowed. Only FT01, general revenue fund 0001 reports GL 2325. The fund balance is reported as a restricted fund balance. No entry is needed in this case.
| GL Accounts | |
|---|---|
| Restricted | $ (250.00) |
| Total — Fund Balance Accounts | $ (250.00) |
Example 4b
A fund in FT02 could still allocate fund balances among non-spendable, restricted, committed and assigned (as needed) if there is a total credit fund balance.
| GL Accounts | Before Allocation | Allocation Entry | After Allocation |
|---|---|---|---|
| Restricted | $ (250.00) | $ 100.00 | $ (150.00) |
| Committed | 0.00 | (75.00) | (75.00) |
| Assigned | 0.00 | (25.00) | (25.00) |
| Total — Fund Balance Accounts | $ (250.00) | $ 0.00 | $ (250.00) |
The total fund balance amount remains $ (250.00).
Example 4c
If, however, the total fund balance has a debit balance, allocation entries are required to reclassify the fund balance from restricted to unassigned — since the restricted fund balance cannot report a debit balance – even though it is in FT02.
| GL Accounts | Before Allocation | Allocation Entry | After Allocation |
|---|---|---|---|
| Restricted | $ 250.00 | $ (250.00) | $ 0.00 |
| Unassigned | 0.00 | 250.00 | 250.00 |
| Total — Fund Balance Accounts | $ 250.00 | $ 0.00 | $ 250.00 |
Process a USAS entry to allocate the restricted fund balance to the unassigned fund balance. The total fund balance amount remains $ 250.00.
Encumbrances
A fund balance constraint specific to encumbrances (similar to “reserved for encumbrances”) is no longer reported. This does not impact the process of recording encumbrances in USAS for budgetary purposes. For more information, see Encumbrance Reporting and Lapsing of Appropriations (APS 018) (FPP A.019).
Include encumbered funds in the restricted, committed or assigned category based on the constraints placed on them.
Amounts encumbered for a specific purpose may be reported as assigned fund balance only if the resources:
- Are not already considered to be reportable as restricted or committed fund balance
- Will not result in a negative unassigned fund balance
The Comptroller’s office does not require that encumbrances be disclosed in agencies’ notes to the financial statements as this information is not used in the compilation of the State of Texas Annual Comprehensive Financial Report (ACFR). However, agencies may choose to disclose encumbrances in their AFR notes to the financial statements.
Imprest Accounts
Imprest accounts (petty cash type accounts) are not reported as a separate fund balance category and are not classified in a different category from the remainder of the fund balance (that is, restricted, committed or assigned).
For fund balance allocation templates, see the Working Papers.
Government-wide Statement of Net Position Basis Conversion GL’s
The following basis conversion GLs are used to record the components of net position for governmental funds.
Net Position, Net Investment in Capital Assets (GL 3505) – The difference between assets, deferred outflows, deferred inflows and liabilities that consists of capital and right of use (RTU) assets (including restricted capital assets) less (including but not limited to):
- Accumulated depreciation.
- Accumulated amortization (except for accretion on capital appreciation bonds).
- The outstanding principal of capital-related borrowings related to the agency’s own capital assets (excluding unspent proceeds), commonly known as outstanding capital debt.
- Debt used to refund capital-related borrowings, including lease liabilities, SBITA liabilities and PPP liabilities, both current and non-current.
- Any other non-debt capital-related liabilities as of fiscal year-end, including accounts payable and retainage payable. Retainage is the amount held back until a contractor completes work.
- Original issue premiums on outstanding capital-related debt.
- Deferred inflows of resources (for example: a gain on refunding of outstanding capital-related debt or those resulting from the acquisition of a capital asset, such as through a service concession arrangement).
Plus (including but not limited to):
- Original issue discounts on outstanding capital-related debt
- Deferred outflows of resources (such as a loss on refunding of outstanding capital-related debt)
FT11 does not need an entry to reclassify net investment in capital asset from unrestricted net position GL 3950. All activity in FT11 closes to GL 3505.
FT12 may have activity that requires a reallocation entry from GL 3950 to GL 3505. Agencies that have RTU lease (GL s 1629 and 1719) and SBITA obligations (GL s 1224 and 1624) must offset those amounts with the balance in GL 3505.
FT21 may have activity that requires a reallocation entry. PPP obligations related to capital and RTU assets must be offset by the balance in GL 3505.
The portion of debt or deferred inflows of resources attributable to the unspent amount of related debt proceeds or deferred inflows of resources at fiscal year-end is included in the same net position component (restricted or unrestricted) as the unspent amount — not in the calculation of net position, net investment in capital assets.
Net investment in capital assets for governmental activities and business-type activities is difficult to trace through notes and schedules on financial reports. For example, part of accounts payable may be capital accounts payable, but are not separately displayed in financial statements. For this reason, the agency must submit the Net Investment in Capital Assets working paper to show the calculation of the net investment in capital assets. Use the working paper’s PG# column to reference the source of the line item from the agency’s annual financial report.
Restricted Net Position – The difference between assets, deferred outflows, deferred inflows and liabilities that consists of assets with constraints placed on their use that are either:
- Externally imposed by creditors, grantors, contributors or laws/regulations of other governments.
–OR– - Imposed by law through enabling legislation.
Record restricted net position to the following GLs:
- GL 3700 basis conversion net position restricted for debt retirement
- GL 3705 basis conversion net position restricted for capital projects
- GL 3710 basis conversion net position restricted for education
- GL 3715 basis conversion net position restricted for transportation
- GL 3795 basis conversion net position restricted for other
Record nonexpendable restricted net position to the following GLs:
- GL 3800 basis conversion nonexpendable net position restricted for permanent school fund
- GL 3840 basis conversion nonexpendable net position restricted for endowment funds
- GL 3845 basis conversion nonexpendable net position restricted for permanent funds
Record expendable restricted net position to the following GLs:
- GL 3890 basis conversion expendable net position restricted for endowment funds
- GL 3895 basis conversion expendable net position restricted for permanent funds
Unrestricted Net Position – The difference between the assets, deferred outflows, deferred inflows and liabilities not reported as net position, net investment in capital assets or restricted net position.
Record unrestricted net position to the following GLs:
- GL 3900 basis conversion net position unrestricted – permanent health fund
- GL 3950 basis conversion unrestricted net position