Note 1 – Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

The (official name of the government) was incorporated on (date) and operates under the laws of the state of Washington applicable to a (type of government). [1] The (city/county/district) is a (general/special) purpose local government and provides (list major types of services). [2]

The (city/county/district) reports financial activity in accordance with the Cash Basis Budgeting, Accounting and Reporting System (BARS) Manual prescribed by the State Auditor’s Office under the authority of Washington State law, Chapter 43.09 RCW. This manual prescribes a financial reporting framework that differs from Generally Accepted Accounting Principles (GAAP) in the following manner:

  • Financial transactions are recognized on a cash basis of accounting as described below.
  • Component units are required to be disclosed, but are not included in the financial statements (see Note X – Component Unit(s), Joint Ventures, and Related Parties).
  • Government-wide statements, as defined in GAAP, are not presented.
  • All funds are presented, rather than a focus on major funds.
  • The Schedule of Liabilities is required to be presented with the financial statements as supplementary information.
  • Supplementary information required by GAAP is not presented.
  • Ending balances for proprietary and fiduciary funds are presented using classifications that are different from the ending net position classifications in GAAP.

A. Fund Accounting

Financial transactions of the government are reported in individual funds. Each fund uses a separate set of self-balancing accounts that comprises its cash and investments, revenues and expenditures. The government’s resources are allocated to and accounted for in individual funds depending on their intended purpose. Each fund is reported as a separate column in the financial statements, except for fiduciary funds, which are presented by fund types. The total column is presented as “memo only” because any interfund activities are not eliminated. The following fund types are used:

Governmental Fund Types: [3]

General Fund
This fund is the primary operating fund of the government. It accounts for all financial resources except those required or elected to be accounted for in another fund.

Special Revenue Funds
These funds account for specific revenue sources that are restricted or committed to expenditures for specified purposes of the government.

Debt Service Funds
These funds account for the financial resources that are restricted, committed, or assigned to expenditures for principal, interest and related costs on general long-term debt.

Capital Projects Funds
These funds account for financial resources which are restricted, committed, or assigned for the acquisition or construction of capital facilities or other capital assets.

Permanent Funds
These funds account for financial resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support programs for the benefit of the government or its citizenry.

Proprietary Fund Types: [3]

Enterprise Funds
These funds account for operations that provide goods or services to the general public and are supported primarily through user charges.

Internal Service Funds
These funds account for operations that provide goods or services to other departments or funds of the government on a cost reimbursement basis.

Fiduciary Fund Types: [3]

Fiduciary funds account for assets held by the government in a trustee capacity or as a custodian on behalf of others.

Pension (and Other Employee Benefit) Trust Funds
These funds are used to report fiduciary activities for pension and OPEB plans administered through trust.

Investment Trust Funds
These funds are used to report fiduciary activities from the external portion of investment pools and individual investment accounts that are held in trust. [4]

Private-Purpose Trust Funds
These funds report all trust arrangements under which principal and income benefit individuals, private organizations or other governments.

Custodial Funds
These funds are used to account assets that the government holds on behalf of others in a custodial capacity.

B. Basis of Accounting and Measurement Focus

Financial statements are prepared using the cash basis of accounting and measurement focus. Revenues are recognized when cash is received and expenditures are recognized when paid.

In accordance with state law the (city/county/district) [5] also recognizes expenditures paid during twenty days after the close of the fiscal year for claims incurred during the previous period.

C. Cash and Investments

See Note X – Deposits and Investments.

D. Capital Assets

Capital assets are assets with an initial individual cost of more than $____ and an estimated useful life in excess of __ years. Capital assets and inventory are recorded as capital expenditures when purchased.

E. Compensated Absences

Vacation leave may be accumulated up to ___ days and (is or is not) payable upon separation or retirement. Sick leave may be accumulated (indefinitely or up to X hours). Upon separation or retirement employees (do or do not) receive payment for unused sick leave. Payments are recognized as expenditures when paid.

F. Long-Term Debt

See Note X – Long-term Debt.

G. Restricted and Committed Portion of Ending Cash and Investments [6]

Beginning and Ending Cash and Investments are reported as restricted or committed when it is subject to restrictions on use imposed by external parties or due to internal commitments established by _____________. When expenditures that meet restrictions are incurred, the (city/county/district) intends to use the most restricted resources first.

Restrictions and commitments of Ending Cash and Investments consist of ______________________.

Instructions to preparer:


[1] For type of government describe the legal formation of your government, such as second-class city with a mayor-council form of government.
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[2] For major types of services, summarize the functions that your government performs, such as:

Public safety, fire prevention, street improvement, park sand recreation, health and social services, and general administrative services. In addition, the (city/county/district) owns and operates a sewer system.
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[3] Eliminate labels and descriptions of any funds that your government does not use. The external portion of investment pools that are not held in trust should be reported in a separate external investment pool fund column under the custodial funds classification.
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Return to Reference 3 - Proprietary
Return to Reference 3 - Fiduciary


[4] Counties onlyIf there is an external investment pool, the county should use these fund types for all transactions for the Special Purpose Districts. The county should not record the maturity and repurchase transactions as additions and reductions.
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[5] Counties that elected under RCW 36.40.200 to allow appropriation account to remain open after the end of the fiscal year should include the following disclosure:

In accordance with state law, the (county) also recognize expenditures paid during (number of days) after the close of the fiscal year for claims incurred during the previous period.
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[6] In relation to internal commitments, describe the government’s highest level of decision-making authority and the formal action required to establish, modify or rescind a fund balance commitment. For example: “…by ordinance or resolution of the City Council.”

If the government reports any restricted and committed amounts of ending cash and investments, it should describe the specific purposes (not functions) and amounts of these restrictions and commitments.
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