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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

Specialized Accounting
Non-Exchange Transactions

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Introduction [+]

State and local governments engage in two kinds of transactions:

  • Exchange and exchange-like transactions in which each party receives and gives up essentially equal values.
  • Non-exchange transactions in which a government gives (or receives) value without directly receiving (or giving) equal value in exchange.

GASB 33 establishes accounting and financial reporting standards for the non-exchange transactions of state and local governments — whether they are recipients of resources or providers of resources to others. GASB 33 applies to all governments¹ that engage in non-exchange transactions — including primary governments and component units in the same reporting entity.

GASB 33 defines transactions as external events and applies to non-exchange transactions between primary governments and their component units. GASB 33 does not apply to internal events (such as nonreciprocal [or non-exchange] transfers of resources between funds of the same government).

GASB 34, paragraph 61, requires non-exchange transactions between the primary government and its blended component units to be classified as nonreciprocal interfund activity (transfers). Resource flows (except those that affect the balance sheet only — such as loans and repayments) between a primary government and its discretely presented component units are reported as if they were external transactions (revenues and expenses) rather than as transfers. Payables and receivables between the primary governments and its discretely presented component units must be reported separately from other payables and receivables.

GASB 33 requires examination of each non-exchange transaction at the time of the transaction. Revenue recognition is determined on a transaction-by-transaction basis as each situation may be different. If you need assistance determining the proper accounting treatment for transactions, please contact your financial reporting analyst.

To comply with the requirements of GASB 34, GASB 35 and GASB 65, accruals not recorded under the modified accrual basis are recorded for the conversion to full accrual basis for the government-wide financial statements to the following:

  • Receivables (or advances)
  • Revenues
  • Unearned revenues
  • Deferred inflows of resources

Agencies that use proprietary or fiduciary accounting report on a full accrual basis.

Establish contra asset accounts (allowance for doubtful accounts) for uncollectible receivables (such as gifts or pledges). Uncollectible amounts are written off (with proper approval) when they are determined to be uncollectible in accordance with Accounting for Uncollectable Accounts (APS 027) (FPP C.001).

The Comptroller’s office uses a 60-day period as the basis of availability for revenue recognition under modified accrual.

GASB 33 requires the recognition of capital contributions to proprietary funds and to other governmental entities that use proprietary fund accounting as revenues — not contributed capital.

All standards in GASB 33 apply whether the full accrual basis or the modified accrual basis of accounting is required. On either basis of accounting, recognition of non-exchange transactions in the financial statements is required unless the transactions are not:

  • Measurable (reasonably estimable)
    –OR–
  • Probable of collection²

Disclose in Note 20 transactions that are not recognizable because they are not measurable.

GASB 33 applies to non-exchange transactions involving financial or capital resources and does not apply to other resources (such as contributed services, food stamps and on-behalf payments for fringe benefits and salaries — these are addressed in GASB 24). GASB 33 also applies to pass-through grants as defined in GASB 24.³ Application of the standards in GASB 33 requires analysis of the substance of a transaction — rather than attention only to its label.

A transaction’s label often indicates its substance and the class of non-exchange transaction to which it belongs. In practice, however, the same label (such as tax or grant) may be given to transactions that have different characteristics and are accounted for in a different manner. For example, property taxes and income taxes have different characteristics that affect how they are reported.

By contrast, different labels may be given in practice to transactions that, from an accounting and financial reporting perspective, have the same characteristics and are reported in the same manner. For example, some transactions called grants have the same characteristics as other transactions called contributions or donations.

Labels commonly used for exchange and exchange-like transactions (such as fees and charges) sometimes are applied to non-exchange transactions; therefore, it cannot be assumed from the label that an exchange occurred. Some transactions have characteristics of both exchange and non-exchange transactions. For example, a for-profit organization may provide resources to a public university for research that may result in commercial applications. The award may be labeled as a grant, but if the provider retains the right of first refusal to benefit from the research results, the award may be an exchange or exchange-like transaction. The characteristics of the award may require that part of the transaction be accounted for as an exchange transaction and the remainder as a non-exchange transaction.


¹ The terms government, governments and governmental in GASB 33 do not include the federal government, unless otherwise indicated.

² In this statement, the term probable has the meaning assigned in paragraph 3a of Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies — “the future event or events are likely to occur.”

³ GASB 33 does not apply to the use of resources resulting from grants or other non-exchange transactions when that use is an exchange transaction (such as the use of grant monies to purchase goods or services).

Characteristics of Exchange and Non-Exchange Transactions [+]

The table below provides guidance in determining exchange vs. non-exchange transactions.

Exchange Transactions Non-Exchange Transactions
Funds provide goods or services for the resource provider. Funds provide resources for the programmatic activities of the agency.
The resource provider is making a charitable contribution under the Internal Revenue code.
Initiative for the activity comes from the resource provider (for example, an RFP). Initiative for the activity comes from the agency.
Proprietary results belong to the resource provider, in whole or in part, after the work is completed. Proprietary results belong entirely to the agency.
Results of the work have commercial value to the resource provider. Results of the work have no commercial value to the resource provider.
Resource provider sponsors R&D activities and retains patents, copyrights and advance and exclusive knowledge of outcomes. The agency determines intellectual property rights.
Funds support the direct/immediate need of the resource provider. Funds support the needs of the agency.
Benefits to the non-government resource provider are primary and public benefits are secondary. Benefits are to the agency and its existing or planned academic programs.
Resource provider defines performance objectives such as a detailed report and a timetable for meeting objectives. The agency defines performance objectives.
Time and place for deliverables (for example, progress reports) are specified in the agreement. Time and place for delivery of reports are not specified.
Fulfills a service as prescribed by the resource provider. Fulfills a need of the agency.
The agency gives up the benefits of the activity to the resource provider. The resource provider does not receive commensurate value in return for support.
The agency pays economic/punitive penalties for failure to meet objectives of the resource provider. The agency has an unconditional right to receive the funds.

Note: In making an exchange/contribution determination, weigh all of the applicable characteristics. No single factor is determinant.

Examine the actual substance of a transaction before applying GASB 33. There are many transactions that appear to fall under the authority of GASB 33 that in actuality do not. GASB 33 does not apply to exchange transactions and it is often difficult to determine if a transaction is an exchange or non-exchange transaction.

The following are examples of exchange transactions not covered by GASB 33.

Example: Developer Contribution-Infrastructure

A city (recipient) gives land valued at $10 million to a developer (provider) to construct an industrial park. In return, the developer assumes the cost of installing roads, power lines, water and sewer lines and other infrastructure on the site. When the industrial park is completed, the developer is to give the infrastructure (excluding the land), that has a total cost of approximately $9.5 million, to the city.

This is an exchange-like transaction (land for constructed infrastructure of approximately equal values) and is accounted for as an exchange transaction — assets and revenues are recognized when the exchange occurs. GASB 33 does not apply.

Example: Research Grant

A large corporation that makes cleaning products (provider) gives money to an agency (recipient) to conduct research on the ability of a certain chemical compound to quickly remove graffiti. The corporation stipulates that the research results be shared with the corporation before being announced to the public and that the corporation has the right to apply for a patent on the compound.

This is an exchange transaction. In return for its gift, the corporation receives the right (future benefit) to profit from the research results. Assets and revenues are recognized when the exchange occurs. GASB 33 does not apply.

Characteristics and Classes of Non-Exchange Transactions [+]

In a non-exchange transaction, a government (provider), including the federal government, either gives value (benefit) to another party without directly receiving equal value in exchange or receives value (benefit) from another party without directly giving equal value in exchange. GASB 33 groups non-exchange transactions of governments into four classes, based on their principal characteristics:

  1. Derived Tax Revenues result from assessments imposed by governments on exchange transactions. Examples include taxes on personal income, goods or services. The principal characteristics of these transactions are:
    1. The assessing government imposes the provision of resources on the provider (the entity that acquires the income, goods or services).
    2. The government’s assessment is on an exchange transaction (such as the exchange of an employee’s services for a wage or salary or the exchange of motor fuel for the market price of the fuel).
      • Assets Recognition — Recognize assets from derived tax revenue transactions in the period when the exchange transaction occurs or when the resources are received, whichever occurs first.
      • Revenue Recognition — Recognize revenues, net of estimated refunds and estimated uncollectible amounts, in the same fiscal year that the assets are recognized, provided that the underlying exchange transaction has occurred. Per GASB 65, paragraph 31, resources received in advance are reported as liabilities until the fiscal year of the exchange.

    Example: Sales Tax

    A state (recipient) imposes a tax on sales of goods by retail merchants. The tax is 5 percent of the sale amount and is collected from customers (providers) by merchants at the time of sale. Most merchants must submit sales tax receipts to the state on a weekly basis — smaller retailers submit receipts on a quarterly basis. This example illustrates the characteristics of derived tax revenues. (The sales are exchange transactions.) The state recognizes assets and revenues, net of estimated refunds, as each sales transaction occurs.
  2. Imposed Non-Exchange Revenues result from assessments by governments on nongovernmental entities, including individuals, other than assessments on exchange transactions. Examples include:
    • Property (ad valorem) taxes
    • Fines and penalties
    • Property forfeitures (such as seizures and escheats)

    The principal characteristic of these transactions is the transmittal of resources to the assessing government is imposed by that government due to an act committed or omitted by the provider (such as property ownership or the contravention of a law or regulation) that is not an exchange transaction.

    • Assets Recognition – Assets from imposed non-exchange revenue transactions are recognized when an enforceable legal claim arises or the assets are received, whichever occurs first.
    • Revenue Recognition – Recognize revenues in the same period the assets are recognized unless the enabling legislation includes time requirements. If time requirements are stipulated, recognize revenues in the period the resources are used or when use is first permitted. Per GASB 65, paragraph 9, resources received or recognized as receivables before that period are reported as deferred inflows of resources.

    Example: Property Tax with Early Collections

    A city (recipient) through its council adopts a property tax levy ordinance that explicitly links the taxes to the appropriation ordinances for the fiscal year May 1, 20PY, through April 30, 20CY. State statutes indicate the city’s enforceable legal claim to taxes arises on the lien date, defined as the Jan. 1 preceding the start of the fiscal year for which the taxes are levied. Taxes are collected March 1, 20PY, or later.

    This example illustrates the characteristics of imposed non-exchange revenues. The city recognizes property taxes receivable on Jan.1, 20PY, (the date the enforceable claim arises) and it recognizes revenues over the period of May 1, 20PY, through April 30, 20CY, (the period for which the tax is levied). For the period from Jan. 1, 20PY until May 1, 20PY, the city recognizes deferred inflows of resources for property taxes recognized as receivable or received.

  3. Government-Mandated Non-Exchange Transactions occur when a government (including the federal government) at one level provides resources to a government at another level and requires that government to use the resources for a specific purpose or purposes established in the provider’s enabling legislation1. The provider establishes purpose restrictions and may also establish time requirements. The principal characteristics of these transactions are:
    • A provider government (including the federal government) mandates that a recipient government perform a particular program or facilitate its performance by another government or by a nongovernmental entity (secondary recipient).
      –AND–
    • Fulfillment of certain requirements is essential for a transaction (other than the provision of cash or other assets in advance) to occur. These essential requirements may include time requirements and are referred to in GASB 33 as eligibility requirements.

    Providers of resources in government-mandated or voluntary non-exchange transactions often stipulate eligibility requirements. Eligibility requirements are conditions (established by legislation or the provider) that must be met before a transaction can occur (other than the provision of cash or other assets in advance). Until all eligibility requirements are met, the provider does not have a liability, the recipient does not have a receivable and the recognition of expenses or revenues for resources transmitted in advance is not recognized until those eligibility requirements are met.

    • Assets Recognition — When all applicable eligibility requirements (including time requirements) are met, recipients recognize receivables (or a decrease in liabilities) and providers recognize liabilities (or a decrease in assets).
    • Revenue Recognition — When all applicable eligibility requirements (including time requirements) are met, recipients recognize revenues (net of estimated uncollectible amounts) and providers recognize expenses from government-mandated or voluntary non-exchange transactions.

    The recipient reports resources transmitted before the eligibility requirements are met as deferred inflows of resources and the provider reports an advance2 except as indicated below for recipients of certain resources transmitted in advance.

    Purpose Restriction — In some kinds of government-mandated and voluntary nonexchange transactions, a provider transmits cash or other assets with the stipulation (time requirement) that the resources cannot be sold, disbursed or consumed until after a specified time passes or a specific event occurs, if ever. During the interim, the provider requires or permits the recipient to benefit from the resources (for example, by investing or exhibiting them). Examples of these transactions include:

    • Permanently nonexpendable additions to endowments and other trusts
    • Term endowments
    • Contributions of works of art, historical treasures and similar assets to capitalized collections

    For these kinds of transactions, the recipient recognizes revenues when the resources are received provided that all eligibility requirements have been met.3 Resulting net position (or equity or fund balance, as appropriate) is reported as restricted for as long as the provider’s purpose restrictions or time requirements remain in effect.4

    Example: Educational Programs

    A state (provider) reimburses school districts (recipients) for specific costs related to special education up to a maximum amount for each school district in each school year. To obtain reimbursement for allowable costs, the school districts submit quarterly reports to the state.

    This example illustrates the characteristics of voluntary non-exchange transactions (the program is not a mandate of the state or the school districts). However, fulfillment of the following two eligibility requirements is necessary for a transaction to occur — in addition to the requirement that the recipients be school districts.

    • The applicable period (school year) has begun.
    • The school districts have incurred costs.

    The second requirement indicates the transaction has the characteristics of grants commonly referred to as reimbursement-type or expenditure-driven grants.

    After the school year has begun:

    • Recipients recognize receivables and revenues as they incur allowable costs up to the yearly maximum.
    • The state (provider) recognizes liabilities and expenses as the school districts incur allowable costs up to the allowed yearly maximum.
  4. Voluntary Non-Exchange Transactions result from legislative or contractual agreements,5 other than exchanges, entered into willingly by two or more parties. Examples of voluntary non-exchange transactions include:
    • Certain grants
    • Certain entitlements
    • Donations by nongovernmental entities including individuals (private donations)

    Both parties to a voluntary non-exchange transaction may be governments (provider), including the federal government, or one party may be a nongovernmental entity, including an individual. Frequently, the provider establishes purpose restrictions and eligibility requirements. The provider may require the return of the resources if the purpose restrictions or eligibility requirements are not fulfilled after recognition of the transaction.

    The principal characteristics of voluntary non-exchange transactions are:

    • They are not imposed on the provider or recipient.
    • Fulfillment of eligibility requirements is essential for a transaction to occur (other than the provision of cash or other assets in advance).

    Example: Private Donation with Eligibility Requirements

    An individual (provider) promises in writing to give $1 million to the town library (recipient) for the construction of a new wing, provided the library raises an equal amount of donations from others.

    This example illustrates the characteristics of voluntary non-exchange transactions. But, fulfillment of an eligibility requirement is necessary for a transaction to occur: the library is to raise $1 million from other parties for a construction of the new wing. The library recognizes a receivable and a revenue for the individual’s $1 million when the other $1 million is raised. Resulting net position (or fund balance) is restricted until used because there is a purpose restriction (construction of a new wing).

    Example: Private Donation with Purpose Restriction

    An individual (provider) makes a large cash donation to a university (recipient). The donation is to be used in the business school at any time for operations, scholarships or any other purposes deemed appropriate by the university.

    This example also illustrates the characteristics of voluntary non-exchange transactions. There is no eligibility requirement. Assuming the donation was not announced in advance, the university recognizes cash and revenue when the money is received. If, on the other hand, the donor announces the donation a year before paying it and the university believes the collection is probable, the university recognizes a receivable and revenue when the donation is announced. The university reports resulting net position (or fund balance) as restricted until it is used because of the purpose restriction.

    Example: Term Endowment

    An alumnus promises to donate $500,000 to his alma mater with the stipulation that the university invest the principal and use the income to provide summer research grants for accounting faculty members. The terms of the agreement specify that, after the donor’s death, the university must withdraw the principal of the gift and use it (expend it) for summer research grants for accounting faculty members.

    This example is also a voluntary non-exchange transaction. The gift is a term endowment. The requirements to invest the principal until the donor’s death and then to expend it for summer grants are purpose restrictions. The requirement to maintain the principal intact until after the donor’s death is a time requirement.

    The university recognizes assets and revenues when the gift is received. The university does not recognize a receivable when the promise is made because the university cannot begin to comply with the time requirement until the gift is received. When the gift is recognized, the university reports resulting net position as restricted because of the purpose restrictions and the time requirement. The initial purpose restriction (invest the principal) and the time requirement (maintain principal intact) expire at the donor’s death. However, the university continues to report net position as restricted after the donor’s death until the principal is expended in accordance with the donor’s stipulations.

    Transactions with time requirements as shown above are distinguished from those in which a government receives cash or other assets (for administrative or practical reasons) in the fiscal year immediately before the fiscal year that the provider specifies as the time when sale, disbursement or consumption is required or may begin. Although the recipient may benefit from the short-term investment of these resources, the benefit is incidental and not a primary purpose of the provider. The recipient recognizes receivables (or a decrease in liabilities) and revenue (net of estimated uncollectible amounts) when all eligibility requirements (including time stipulations) are met.

    When there are no time requirements, the entire award is recognized by the provider as a liability and an expense while the recipient recognizes a receivable and revenue (net of estimated uncollectible amounts). These transactions are recognized in the fiscal year when all applicable eligibility requirements are met.

    When the provider is a government (including the federal government), the applicable period for both the provider and recipient is the provider’s fiscal year and begins on the first day of that year.6 The entire award is recognized at that time. If a provider government has a biennial budgetary process, each year of the biennium is considered as a separate applicable period. In such circumstances, the provider and recipient allocates one-half of the resources appropriated for the biennium to each applicable period, unless the provider specifies a different allocation.

    Example: Awards from Biennial Appropriation

    A state (provider) gives money to counties (recipients) for road maintenance. The state has a biennial budget and appropriates the amounts for the two-year period beginning July 1, 20CY. Approximately one-half of the total is provided in the first fiscal year of the biennium and the remainder in the second fiscal year. The state and the counties have concurrent fiscal years.

    This example illustrates the characteristics of voluntary non-exchange transactions (the program is not a mandate on the state or counties). However, fulfillment of an eligibility requirement (in addition to the requirement that the recipients be counties) is necessary for the transaction to occur: the applicable period for use of the resources has begun. In this case there are two applicable periods because the appropriation occurs in the year beginning July 1, 20CY, but applies to the next fiscal year as well.

    The counties (recipients) recognize receivables and revenues for approximately one-half of the resources on July 1, 20CY. The remainder is recognized in the following fiscal year. Because there is a purpose restriction, the counties report resulting net position (or fund balance) as restricted until used.

    The state (provider) recognizes liabilities and expenses for approximately one-half of the resources on July 1, 20CY. The remainder is recognized in the following year.

    Voluntary promises of cash or other assets made by nongovernmental entities (including individuals) may be referred to as “pledges,” “promises to give” or “promised donations,” etc. Such “promised” or “pledged” assets may include permanently nonexpendable additions (with or without purpose restrictions or time requirements) to:

    • Endowments and other trusts
    • Term endowments
    • Contributions of works of art and similar assets to capitalized collections or other types of assets

    If the promise is verifiable, resources are measurable and probable of collection and all eligibility requirements are met, the recipient recognizes receivables and revenues (net of estimated amounts).

    Example: Multiyear Promise with Eligibility Requirement

    An individual (provider) pledges $500,000 to a hospital (recipient) to further its mission of serving the indigent. The donor’s letter specifies he will pay $100,000 per year over the next five years and each installment is to be used in the year it is paid.

    This example illustrates the characteristics of voluntary non-exchange transactions. But, fulfillment of an eligibility requirement is necessary for a transaction to occur — the period to which each installment applies must have begun. Assuming the hospital believes the installments are probable of collection, the hospital recognizes a receivable and revenue of $100,000 in each of the five years. The requirement to use the resources to further the hospital’s mission is not a purpose restriction as serving the indigent is part of the hospital’s general operations.

    Example: Multiyear Promise without Eligibility Requirement

    The facts of the previous example are the same for this example, except the donor does not specify that each installment be used in the year it is paid. Thus, there is no eligibility requirement. Assuming the hospital believes that the installments are probable of collection, it recognizes a receivable and revenue for the discounted present value of the five installments in the period when the donor’s pledge is received. Subsequent accruals of the interest element are reported as revenues.

    Example: Status as Potential Beneficiary

    A 25-year-old recent graduate (provider) of a state university names the university (recipient) as the primary beneficiary in her will. The graduate is single and has an estate currently valued at $50,000.

    This example illustrates the characteristics of voluntary non-exchange transactions. However, the university does not recognize any asset or revenue. It is not probable the university will remain the primary beneficiary and potential future distributions from the estate are not measurable (reasonably estimable) at this time.

    When there is a time requirement that prohibits the sale, disbursement or consumption of government-mandated or voluntary non-exchange transactions until a specified time period begins or passes, the time requirement is met as soon as the recipient begins and continues to honor the provider’s stipulations. For these kinds of transactions, the recipient recognizes revenues when the assets are received if all eligibility requirements are met. The recipient does not begin to meet time requirements until the cash or other assets are received.


1 Unfunded mandates are not transactions (no value passes from one party to another); therefore, GASB 33 does not apply to them.

2 Recognition of assets and revenues is not delayed pending completion of purely routine requirements, such as the filing of claims for allowable costs under a reimbursement program (GASB 33, paragraph 20c) or the filing of progress reports with the provider.

3 For transactions that meet the criteria of this paragraph, the time requirement is met as soon as the recipient begins to honor the provider’s stipulation not to sell, disburse or consume the resources and continues to be met for as long as the recipient honors that stipulation.

4 For a governmental fund, recipients report a restricted fund balance.

5 Contractual agreements include oral and written contracts, provided they are verifiable.

6 For secondary recipients, the fiscal year of the immediate provider applies — rather than that of the originating provider. For example, the state government’s fiscal year would apply for a local government receiving federal resources via the state government.

Eligibility Requirements [+]

Eligibility requirements for government-mandated and voluntary non-exchange transactions comprise one or more of the following:

  • Required characteristics of recipients – The recipient (and secondary recipient, if applicable) has the characteristics specified by the provider. For example, under a certain federal program, recipients are required to be states and secondary recipients are required to be school districts.
  • Time requirements – Time requirements specified by enabling legislation or the provider were met. (Resources were used in the specified time period, or the time period has begun, or the resources were maintained intact as required by the provider.)
  • Reimbursements – The provider offers resources on a reimbursement (“expenditure-driven”) basis and the recipient incurred allowable costs under the applicable program.
  • Contingencies – The provider’s offer of resources is contingent upon a specified action of the recipient and that the action has occurred. For example, the recipient is required to raise a specific amount from third parties to have fulfilled the requirement. Contingencies apply only to voluntary non-exchange transactions.

Time Requirements and Purpose Restrictions [+]

Enabling legislation or providers of resources in non-exchange transactions frequently stipulate time requirements, purpose restrictions or both.

  • Time requirements — the period or periods when resources are to be used or when use may begin.

    For example, a provider may specify that the resources it provides are to be disbursed during a specific fiscal year or over a specified number of years, or that resources it provides cannot be disbursed until after a certain date or event has occurred, if ever.

  • Purpose restrictions — the purpose or purposes for which the resources are required to be used.

    For example, a provider may specify that its resources are expended for road and street repairs or that the principal is held in income-producing investments, as may be the case with an endowment.

Purpose restrictions do not affect the timing of recognition for any class of non-exchange transactions.

Recipients of resources with purpose restrictions report resulting net position (or fund balance, as appropriate) as restricted until the resources are used for the specified purpose — or for as long as the provider requires the resources to be maintained intact (such as, endowment principal).1

GASB 33 provides guidance about the timing of recognition for non-exchange transactions on the financial statements. Non-exchange transactions include taxes, grants and private donations. The effect on the timing of recognition is different — depending on whether a non-exchange transaction is:

  • imposed non-exchange revenue transaction2
  • government-mandated
  • voluntary non-exchange transaction

GASB 65 amends GASB 33 for non-exchange transactions stipulating that certain items previously reported as assets and liabilities must be reported as deferred outflows of resources and deferred inflows of resources:

  • Imposed non-exchange revenues result from assessments (other than assessments from exchange transactions) imposed on nongovernmental organizations or individuals (such as property taxes and fines). GASB 65 requires state agencies to report deferred inflows of resources for taxes received or receivable when time requirements have not been met.
  • Government-mandated non-exchange transactions occur when a government at one level provides resources to a government at another level and requires the recipient to use the resources for a specific purpose (such as federal programs that state or local governments) are mandated to perform.
  • Voluntary non-exchange transactions result from legislative or contractual agreements (other than exchanges) that are entered into willingly by the parties to the agreement (such as certain grants and private donation).

Providers of resources frequently set up eligibility requirements for government-mandated or voluntary non-exchange transactions.

  • Report the resources transmitted before the eligibility requirements are met by the provider and liabilities by the recipient as assets.
  • Report the resources received after eligibility requirements were met but before time requirements are met:
    • by the provider — as deferred outflows of resources
    • by the recipient — as deferred inflows of resources

1 For a governmental fund, recipients report a restricted fund balance. Accounting for contraventions of purpose restrictions is discussed in GASB 33, Paragraph 26.

2 Derived tax revenues generally do not have time requirements. However, if they apply, asset and revenue recognition must be consistent with the requirements for imposed non-exchange revenue transactions.

Reimbursements [+]

Governments (including the federal government) frequently engage in award programs commonly referred to as “reimbursement-type” or “expenditure-driven” grant programs. These programs may be either government-mandated or voluntary non-exchange transactions, depending on their characteristics.

In either case, the provider stipulates that a recipient cannot qualify for resources without first incurring allowable costs under the provider’s program. Such a stipulation is an eligibility requirement and affects the timing of recognition. Until the recipient meets the provider’s requirements by incurring costs in accordance with the provider’s program, there is no award — the provider has no liability and the recipient has no asset (receivable). Per GASB 65, paragraph 10, Cash and other assets provided in advance are reported as deferred outflows of resources by the provider and deferred inflows of resources by the recipient until allowable costs are incurred and any other eligibility requirements are met.

Subsequent Contravention of Eligibility Requirements or Purpose Restrictions [+]

After a non-exchange transaction is recognized in the financial statements, it may become apparent that either:

  • The eligibility requirements are no longer met
    –OR–
  • The recipient will not comply with the purpose restrictions within the specified time period

If it is probable that the provider will not provide the resources or will require the recipient to return all or part of the resources already received, the recipient recognizes a decrease in assets (or an increase in liabilities) and an expense and the provider recognizes a decrease in liabilities (or an increase in assets) and a revenue for the amount the provider is expected to cancel or reclaim.

Non-Exchange Revenues Administered or Collected by Another Government [+]

A recipient government imposing a tax or other revenue source should have, or reasonably estimate, the accrual-basis information necessary to comply with the requirements of GASB 33 and GASB 65 for derived tax revenues or imposed non-exchange revenues, even if the imposed revenue is collected on the recipient’s behalf by another government. An example is a city sales tax collected by a state and then remitted to the city.

If a government shares its own derived tax revenues or imposed non-exchange revenues with other governments, the recipient governments may be unable to reasonably estimate the accrual-basis information necessary for compliance with GASB 33 and GASB 65. If so, the recipient governments recognize revenues for the period equal to cash received during the period.

Under GASB 65, deferred revenue is no longer recorded and deferred inflows of resources is recognized prior to the point of revenue recognition.

Revenue Recognition Using the Modified Accrual Basis of Accounting [+]

GASB 33 does not change the existing standards for revenue recognition on the modified accrual basis of accounting. Revenues from non-exchange transactions are recognized “in the fiscal year when they become available and measurable.”1 When the modified accrual basis of accounting is used, revenues derived from non-exchange transactions are recognized as follows:

  • Derived Tax Revenues – Recipients recognize revenues in the fiscal year when the underlying exchange transaction occurred and the resources are available. (“Available” continues to be based on a 60-day period according to the policy of the Comptroller.)
  • Imposed Non-Exchange Revenues: Property Taxes – Recipients recognize revenues in accordance with the National Council of Governmental Accounting (NCGA) Interpretation 3, as amended. (Texas state government is not the collector of property taxes.)
  • Imposed Non-Exchange Revenues: Other Than Property Taxes – Recipients recognize revenues in the fiscal year when an enforceable legal claim arises and the resources are available.
  • Government-Mandated Non-Exchange Transactions and Voluntary Non-Exchange Transactions – Recipients recognize revenues in the fiscal year when all applicable eligibility requirements are met and the resources are available.
  • Subsequent Contravention of Provider’s Requirements – If the recipient fails to comply with the provider’s stipulations (such as eligibility requirements or purpose restrictions) and the provider requires the return of resources, the provider recognizes revenues in the fiscal year when the returned resources are available.

1 Measurability and probability of collection are discussed in GASB 33, Paragraph 11.

Summary [+]

Classes of Timing of Recognition of Non-Exchange Transactions

Class Recognition
¹ If there are purpose restrictions, report restricted net position, or for governmental funds, report restricted fund balance.
Derived Tax Revenues
Examples: Sales taxes, personal and corporate income taxes, motor fuel taxes and similar taxes on earnings or consumption
Assets¹
Fiscal year when underlying exchange occurs or when resources are received, whichever is first.
Revenues
Fiscal year when underlying exchange occurs. (Report advance receipts as unearned revenues.) When modified accrual accounting is used, resources should also be “available.”
Imposed Non-Exchange Revenues
Examples: Property taxes, most fines and forfeitures
Assets
Fiscal year when an enforceable legal claim arises or when resources are received, whichever is first.
Revenues
Fiscal year when resources are required to be used or first fiscal year when use is permitted (for example, property taxes may be used in the fiscal year for which they were levied). When modified accrual accounting is used, resources should also be “available.”
Government-mandated
Non-Exchange Transactions

Examples: Federal government mandates on state and local governments
Voluntary Non-Exchange Transactions
Examples: Certain grants and entitlements, most donations. A grant for a student scholarship would be a contribution.
Assets and Liabilities
Fiscal year when all eligibility requirements are met or (for asset recognition) when resources are received, whichever is first.
Revenues and Expenses or Expenditures
Fiscal year when all eligibility requirements are met. Resources transmitted before the eligibility requirements were met (excluding time requirements) are reported by the provider as assets and reported by the recipient as liabilities. Per GASB 65, paragraph 10, those resources received before time requirements are met, but after all other eligibility requirements were met, are reported by the provider as deferred outflows of resources and reported by the recipient as deferred inflows of resources. When modified accrual accounting is used for revenue recognition, resources should also be “available.”

Year-End Accruals [+]

The major impact of GASB 33 comes from the expanded recognition requirements for non-exchange transactions. These types of transactions require a thorough examination of the underlying documents or events. Accounting treatment varies on a case-by-case basis, depending on transaction requirements. Depending on the quantity of transactions, it may be beneficial for agencies to set a materiality threshold for such transactions to limit time spent analyzing documents or events.

Sample Accounting Treatment [+]

Example 1: Community College Capital Program Without Time Requirements

A state (provider) offers money to community colleges (recipients) to be used solely for capital outlays. The amounts are based on student population. Amounts not used within three years must be returned to the state. This is a voluntary non-exchange transaction.

Two eligibility requirements must be met in order for a transaction to occur:

  1. Recipients must be community colleges.
  2. The applicable period must have begun (assumed to be the first day of the state’s fiscal year).

Additionally, the requirement to use the resources for capital outlays is a purpose restriction. Fund balance or equity is restricted until capital costs are incurred due to the purpose restriction. (Purpose restrictions do not affect timing of revenue recognition.)

Accounting Treatment: Full Accrual

Debit Credit
Cash or Accts Receivable 3,000  
Capital Grants Revenue   3,000

Example 1a: Community College Capital Program With Time Requirements – Funds Received

Requirements are the same as the previous example, except the resources must be spread evenly over the three-year period. (Time requirements do affect revenue recognition.) One-third of the revenue is recognized each year.

Debit Credit
Cash 3,000  
Capital Grants Revenue   1,000
Unearned Capital Grants Revenue   2,000

Example 1b: State Cancels Grant After First Year – Advanced Funds are Returned to the State

Debit Credit
Unearned Capital Grants Revenue 2,000  
Cash   2,000

Accounting for Uncollectable Accounts (APS 027) (FPP C.001) provides accounting guidance and entries for disposition of uncollectable loans or other debts owed to state agencies.

Texas Government Code, Section 403.031(c), provides further clarification on reclassifying receivables as uncollectable. Texas Government code, Section 2107.004, provides guidance regarding when an obligation shall be reported to the Office of The Attorney General (OAG) for further collection efforts.

Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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