Published: January 13, 2022

In the spring of 2020, SAO changed the way that cash-basis local governments were to report their cash and investment balances. Gone away were reserved and unreserved classifications and in their place came unassigned, assigned, committed, restricted, and nonspendable. This meant a new task was at hand—calculating the amount of total ending cash and investments that fits into these new classifications at the end of each fiscal year. This article helps you understand how a local government’s accounting policies may dictate how to calculate these amounts.

We recommend local governments include specific spending policies within their accounting policies. Spending policies direct the order that a government uses resources for expenditures. If your government doesn’t have a spending policy, the BARS Manual applies one by default. At this point, you may be wondering what a spending policy has to do with determining ending cash and investment balances. Continue reading to find out.

A Note 1 for all

BARS instructions require you to disclose the order of spending in your government’s Notes to the Financial Statements. Many governments use the default language included in this note template, which states, “When expenditures that meet restrictions are incurred, the (city/county/district) intends to use the most restricted resources first.” Let’s dissect what this means in an example, assuming the default order of spending is applied.

Let’s look at a special revenue fund, such as a tourism fund established for hotel/motel taxes. Governments typically spend funds from most restrictive to least restrictive. Restricted revenues from tax collections that can only be spent for the specific purposes in state law (the fund’s purpose) are spent before committed resources, which are spent before assigned resources. Generally, this provides greater flexibility with unspent, available resources.

How spending policies assist reporting

Knowing how your government spends its resources will help guide your ending cash and investments classifications. Let’s continue with our tourism fund example.

Assume the fund starts the year with $0 in beginning cash and investments.

Now assume the fund collected $100 in hotel/motel taxes—a restricted revenue. The government committed $100 from other revenue sources and transferred (assigned) $100 from the general fund to supplement spending for tourism. Over the course of the year, the fund spent $250 promoting tourism—the fund’s principal activity and allowable use for restricted tax revenues.

What would the ending cash and investment balance be? $50 in assigned cash and investments. Why? Here’s the breakdown:

  1. The fund recognized inflows of $300—$100 each of restricted, committed, and assigned revenues.
  2. The fund spent $250:
    1. The first $100 was expended using restricted revenues since these are spent first based on the spending policy.
    2. The next $100 was expended using remaining committed revenues since these are spent after restricted amounts.
    3. The final $50 was expended using residual assigned resources since no restricted or committed resources were available.
  3. $50 of assigned resources remained in the fund at year-end.

Although this is simplified, the concept remains the same and may help in understanding how you should classify your ending cash and investments.

Tips going forward

  1. Review Note 1. Is the note accurate? Are you disclosing the actual order your government uses resources in your fund(s) to the readers of your financial statements?
  2. Review and compare Note 1 with any accounting policies. Do the two line up? Do they make sense, or do you need to make changes to either your Note 1 or accounting policies?
  3. Use your policies and note disclosures to guide your classification calculations at year-end.
  4. Keep support for how you calculated ending cash and investment unassigned, assigned, committed, restricted, and nonspendable balances for reviewers, auditors, or any other party that may be interested.

If you have questions about the content of this article, reach out to Center@sao.wa.gov. If you have questions about the cash and investment balance definitions or note disclosure requirements, check out the latest criteria in the BARS Manual or submit a HelpDesk request in the client portal.

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