What is a statement of revenues expenditures and changes in fund balances?

Examples from GASB Statement 34 included in this bulletin, copyright by the Governmental Accounting Standards Board, 401 Merritt 7, Norwalk, CT 06856 are reprinted by permission.

Sample City Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2002

The reconciliation of the net change in fund balances of governmental funds to the change in net assets in the statement of activities is presented in an accompanying schedule.

The statement of revenues, expenditures, and changes in fund balances is the income statement prepared by governmental organizations, which tracks in the inflow and outflow of funds or resources. It mostly contains the same significant funds as a balance sheet.

Revenues in the statement of revenues, expenditures, and changes in fund balance are shown by source or type, such as various taxes, fees and charges, intergovernmental aid, and so on.

There are no specific categories of revenue that must be shown, neither there are specific details required for each category. So, this is why results may vary from government to government.

Expenditures generally are sorted and shown in the statement according function and object with the current operating expenditures shown separately from debt service and capital expenditures.

Some governments can break the debt service expenditures into two components: principal and interest components.

It is to be noted that the smaller capital expenditures may be grouped in the functional categories, so the line “capital expenditures” may not represent the actual total.

We can easily determine the total amount of capital expenditures from the information given in this statement’s reconciliation.

It is to be noted that if two governments are using the same functional categories, it doesn’t necessarily mean that they are reporting comparable services.

For example, “public safety” if reported by one government may include police and fire, but for another government it may also include emergency medical services or jails.

Revenues and expenditures are not the only flows of funds that are reported in this statement. Other financing sources and uses that are reported in this statement include the cash received when bonds are issued, as well as any transfers between funds.

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These resource flows aren’t revenues or expenditures, like mentioned, and they are shown separately to help the user of the statement in distinguishing the balance between ongoing revenues and expenditures related to the basic operations of the government.

Examples of this statement:

So, in this statement, special and extraordinary items are shown separate from the revenues and expenditures. These items can be increases or decreases in fund balance, which are unusual in nature and do not occur frequently.

Extraordinary items, as implied from the title, seldom appear in the financial statements. Special items are either unusual or uncommon and the government is able to have some control over them, whereas the extraordinary items rarely are. A special item might be the proceeds from the sale of an asset but only for a government that does not usually sell capital assets.

The last line of the balance sheet shows the net changes in the fund balance—revenues minus expenditures plus or minus total other financing sources/uses plus or minus extraordinary and special items.

The net amount is then added to the fund balances at the beginning of the fiscal year (generally the same amount reported as the ending fund balance for the previous year) to arrive at the closing amount for fund balance. These amounts should match the total fund balances present in the balance sheet.

Reconciliation:

Just like the balance sheet, the Statement of Revenues Expenditures & Changes in Fund Balance also needs to be reconciled.

The figure above illustrates a reconciliation presented on the following page after the Statement of Revenues Expenditures & Changes in Fund Balance (as opposed to being on the face of the statement, as with the sample balance sheet in the first figure).

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Whereas the balance sheet reconciliation is a table with fund balance with governmental activities net assets, this reconciliation shows the differences between any change in fund balances and in governmental activities net assets in the government-wide statement of activities.

Once again, the items to be reconciled are usually related to differences in scope or accounting bases. For example, change in fund balance decreased because of the capital expenditures but under accrual-based accounting in the government-wide statements, capital expenditures are stated as the capital assets they help produce, the cost of which is being depreciated over their useful lives.

So these capital expenditures need to be added back to the change in fund balance. Contrarily, the depreciation expense amount reduces the changes in net assets and it needs to be recognized too.

In the above figure, the amount by which capital expenditures exceeded depreciation, $14,039,717, is added to the net change in fund balances of ($106,657).

Conclusion:

So, to summarize, the Statement of Revenues, Expenditures, and Changes in Fund Balances, is a financial statement prepared by governmental organizations to know the surplus or deficit of revenues over expenditures, the fund balance and the changes in fund balance of the organization over a period of time.

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