Government and Not-for-Profit Entities (4)
Whenever a revenue source is restricted by an outside donor or grantor, or a tax or other revenue source is authorized by a legislative body for a specified purpose, a government should create a special revenue fund to demonstrate that all revenue from that source was used for the specified purpose only
Classification and Reporting of Expenses and Revenue
The format prescribed for the government-wide statement of activities displays the net expense or revenue of each function or program reported for the governmental activities of the government. Functions are group of related activities that are aimed at accomplishing a major service or regulatory responsibility, such as public safety or highways and streets. Programs are group of activities, operations, or organizational units that are directed to the attainment of specific purposes or objectives, such as highway beautification or youth empowerment.
In some cases, an activity such as public safety could be identified as a function of one government and a program of another; however, the important thing to note is that functions and programs represent major activities or services of a government.
Reporting in the net expense or revenue format identifies the extent to which each function of the government draws from the general revenues of the government or is self-financing through fees and intergovernmental aid. The sum of general revenues and any special or extraordinary items is then added to net (expense) revenue to obtain the change in net position for the period.
Reporting Direct and Indirect Expenses
Except for extraordinary or special item expenses, expenses generally are reported by function or program. Direct expenses-those that are specifically associated with a function or program should be reported on the line for that function or program. Indirect expenses those that are not directly linked to an identifiable function or program- can be reported in a variety of ways. A typical indirect expense is interest on general long-term borrowing. In most cases, interest on general long-term borrowing should be reported as a separate line item rather than being allocated to functions or programs.
Government should report at a minimum major functions. Governments are encourages to provide additional information for more detailed programs if such information is useful and does not detract from readers' understanding of the statement.