• Accounting Manual For Small Cities and Towns in Minnesota


  •   
  • FileName: accounting_manual.pdf [read-online]
    • Abstract: This accounting manual outlines a simple and effective system of records and procedures for use in ... Codification of Governmental Accounting and Financial Reporting Standards and Original ...

Download the ebook

Accounting Manual
For
Small
Cities and Towns
in Minnesota
A joint publication of:
League of Minnesota Cities
Minnesota Association of Townships
Office of the State Auditor
Intergovernmental Information
Systems Advisory Council
This page left blank intentionally
Accounting Manual
for Small Cities and
Towns in Minnesota
June 13, 2001
Government Information Division
Office of the State Auditor
State of Minnesota
525 Park Street, Suite 400, St. Paul, MN 55103
[email protected]
www.osa.state.mn.us
This document can be made available in alternative formats upon request.
Call 651-296-2551 [voice] or 1-800-627-3529 [relay service]
This page left blank intentionally
TABLE OF CONTENTS
Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Chapter 1 - The Accounting Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Chapter 2 - Accounting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Enterprise Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Payroll Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Bond and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Record of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Reconcilement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Cash Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Chapter 3 - Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Chapter 4 - Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
APPENDICES
Appendix A - Duties of City/Town Clerks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Appendix B - Chart of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Appendix C - Sample Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Appendix D - Sample Town Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Appendix E - Sample City Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Appendix F - Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
This page left blank intentionally
Accounting Manual For Small Cities and Towns
Foreword
The original project, including the 1988 edition of this manual, was undertaken by the Office of the
State Auditor and the League of Minnesota Cities in cooperation with the Minnesota Association of
Townships. They received financial aid from the state government under a grant from the
Intergovernmental Information Systems Advisory Council (IISAC).
This accounting manual was created to facilitate the designing of personal computer accounting
software for cities and towns in Minnesota. This manual accounting system has been designed for
small cities and towns, depending on their needs and complexity. The system is designed to facilitate
a smooth transition from a basic manual system to a computer system.
The following individuals gave of their time and expertise by serving on the 1988 Computer
Program Advisory Committee:
John Asmus, Intergovernmental Information Systems Advisory Council
Dan Elwood, City of Spring Valley
Ed Fuller, Office of the State Auditor
Constance Haberle, Minnesota Association of Townships
Ann Houle, League of Minnesota Cities
Linda Luoma, Great Scott Township
Charlotte Patterson, City of Minnetrista
Helen Schendel, League of Minnesota Cities
Le Sears, Barclay Township
Roger Sell, Intergovernmental Information Systems Advisory Council
Judy Uhde, City of Bayport
Jean Woorster, Rice Lake Township
Minnesota Office of the State Auditor 1
Accounting Manual For Small Cities and Towns
Introduction
This accounting manual outlines a simple and effective system of records and procedures for use in
small to medium sized towns and cities in Minnesota. The manual discusses the design of uniform
accounting procedures that will benefit clerks and other officials who deal with a relatively low
volume of transactions.
These procedures can provide several benefits:
> Assist in the preparation of
Y Interim financial reports,
Y Annual financial statements,
Y Budgets;
> Provide financial information necessary to the administrative functions of the mayor
and council or town supervisors;
> Assist in the use of personal computers, spreadsheet templates, and accounting
packages;
> Facilitate auditor's work;
> Reduce audit costs.
Several publications are available from the League of Minnesota Cities (LMC), the Minnesota
Association of Townships (MAT) and the Office of the State Auditor (OSA) that contain additional
information in areas covered by this manual. They may be helpful in answering any questions raised
during the use of this manual.
1. Handbook for Minnesota Cities (LMC)
2. The Procedures for Paying City Claims (LMC)
3. Guidelines for Preparing City Budgets (LMC)
4. City Deposits and Investments (LMC)
5. The Auditing of Municipal Accounts (LMC)
6. Public Purpose Expenditures (LMC)
7. Township Officer’s Handbook (MAT)
8. Minimum Reporting Requirements (OSA)
9. Minnesota Accounting and Financial Reporting Standards (OSA)
2 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
Additionally, the following publications are recommended for purchase from the publishers.
Codification of Governmental Accounting and Financial Reporting Standards and Original
Pronouncements, as of June 30, 2000, 2000-2001 Edition, published by the Governmental
Accounting Standards Board (GASB), 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116.
Minnesota Legal Compliance Audit Guide for Local Government, published by the Office of the
State Auditor, Suite 400, 525 Park Street, St. Paul, Minnesota 55103.
2001 GAAFR, published by the Government Finance Officers Association, 180 N. Michigan Avenue,
Suite 800, Chicago, II 60601-7476.
Duties of Clerks under Minnesota Statutes
Generally, the statutes provide for keeping a minute book, an ordinance book, and an account book
in which all receipts and orders drawn upon the treasurer are recorded. The clerk is the designated
custodian of records of the city or town and acts as the custodian of its seal and records, and does
many other specific duties.
The complete text of Minnesota Statutes Sec. 412.151 duties of the city clerk, and the complete text
of Minnesota Statutes Sec. 367.11 duties of the town clerk are in Appendix A.
Minnesota Office of the State Auditor 3
This page left blank intentionally
Accounting Manual For Small Cities and Towns
Chapter 1
The Accounting Process
Accounting is the recording, classifying, and summarizing of transactions in a useful manner, and
interpreting the results.
Any accounting system should start with a budget, prepared and approved before the accounting
period begins.
A system of accounts in which transactions are recorded and summarized on a current basis can
immediately provide financial information to the mayor and council, or the board of supervisors
concerning revenues, expenditures, comparisons to budget, and cash balances. The information is
available on ledger accounts for immediate reference, or for the preparation of interim financial
statements, and year-end financial statements. The information is auditable and can lead to
significant savings in the costs of an audit.
Essential Accounting Tools
Revenues
1. Annual revenue budget (including account codes)
2. Blank pre-numbered receipts
3. Blank receipt register sheets
4. Blank receipt ledger cards
5. Blank revenue report form
Expenditures
6. Annual expenditure budget (including account codes)
7. Blank pre-numbered checks
8. Blank claims
9. Blank disbursement register sheets
10. Blank disbursement ledger cards
11. Blank disbursement report form
Minnesota Office of the State Auditor 5
Accounting Manual For Small Cities and Towns
Revenue Process
Expenditure Process
Figure 1
6 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
Funds
The General Fund is used in municipal finance administration for all financial resources that are not
required to be accounted for in another fund. This encompasses the day-to-day operation of the
governmental unit. Other fund types are used to help insure that certain receipts set aside for specific
purposes will be used for the purposes intended. This may be either for control as in a water utility
or municipal liquor store operation, or to comply with a legal requirement such as a tax levy
authorized for a specific purpose.
Types of Funds
Governmental Funds
1. General Fund
2. Special Revenue Funds
Cities: Library, CDBG, Park
Towns: Road and Bridge, Fire, Cemetery
3. Capital Projects Funds
4. Debt Service Funds
Proprietary Funds
1. Enterprise Funds
2. Internal Service Funds
Fiduciary Funds
1. Trust and Agency Funds
Funds should be kept to a minimum number and should not be established merely for convenience
in separating certain classes of receipts or disbursements. Maintain the minimum number of funds
necessary to meet legal and operating requirements. The clerk should determine the funds necessary
for financial operation of the town or city and should secure a resolution by the board or council
authorizing their establishment.
Minnesota Office of the State Auditor 7
Accounting Manual For Small Cities and Towns
Separate funds should be created under the following conditions:
1. Special Revenue Fund: As required by law or contractual agreement. When the law
requires that a fund be created to administer certain receipts.
2. Capital Projects Fund: To receive and disburse the money from a bond issue.
Bonds are authorized for specific purposes. The expenditure of the money obtained
from a bond issue for other than authorized purposes is usually illegal. To help
prevent illegal expenditures of money from a bond issue, the money should be placed
in a separate fund. First, this designates bond proceeds for a specific purpose.
Second, since each fund requires a separate accounting, a separate fund makes it
easier to control expenditures of the money from a bond issue. A capital projects fund
is temporary in nature. When the project for which the bonds were issued is
completed any remaining money should be transferred to the debt service fund unless
a different disposition is authorized by law.
3. Enterprise Fund: For each enterprise, such as water or sewer, operated by a town
or city. Enterprise funds should be operated on a self-supporting basis. A separate
fund makes it possible to determine the actual cost of operating the enterprise. This
information can be used to determine a rate schedule for the utility as well as to
control and manage revenues and expenses.
Bank Accounts
How many bank accounts should a city or town maintain? This can vary with circumstances and is
always a matter of discretion for the city or town, but generally one bank account is sufficient. One
account simplifies control of funds and makes the reconciliation of the bank balance much easier.
A common, but not necessary, exception is a separate account for a municipal liquor store or another
enterprise fund.
The city council or town board must designate the official depository for the funds at the beginning
of each year. The depository so designated must furnish collateral for any funds on deposit in excess
of the amount covered by insurance ($100,000 currently). This is especially important because a
number of depositories have failed as a result of deficient lending and borrowing policies.
8 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
Chapter 2
Accounting Procedures
Accounting Forms
The following forms have been designed to enable the clerk to fulfill the duties prescribed by statute:
1. Receipt: The original record of money received.
2. Claim: A form for the declaration of a claim against the city or town requesting
payment.
3. Order-Check: The instrument whereby money is disbursed.
4. Receipts Register: The chronological record of all receipts.
5. Disbursements Register: The chronological record of all disbursements.
6. Receipts Ledger: The record in which receipts are classified by source.
7. Disbursements Ledger: The record in which the disbursements are classified by
function or activity and object.
8. Record of Bond Issue: A record of bond maturities, interest, and fiscal charges
payable.
9. Record of Investments: A record of bonds or certificates held for investment.
10. Employee Earnings Record: The record of earnings information for each employee.
11. Payroll Register (Journal): The record of time, earnings, deductions, and net pay
for all employees by payroll period.
Minnesota Office of the State Auditor 9
Accounting Manual For Small Cities and Towns
Receipts
Receipt forms should be in triplicate and pre-numbered by the printer. The original is given to the
person making the payment. One copy is for the treasurer's records, and one copy is the clerk's
record. If the offices of clerk and treasurer are combined as clerk/treasurer, only the original and one
copy are needed.
A separate receipt should be issued for all money received, including amounts received by mail such
as tax apportionments from the county treasurer and state shared taxes or grants from the state. In
these cases the original receipt should be attached to the detailed statement accompanying the
remittance and kept on file.
On page 11 is a sample form of a general receipt. This form provides spaces for all information
pertaining to the receipt of the money. The information must be filled in at the time of the transaction
and is necessary for making entries in the accounting records and for providing supporting
documentation for all receipts. Issuing the receipt is the first step in the recording of receipts and
should be done immediately upon receiving the payment.
The example on the following page has been filled in with an actual transaction. A total payment of
$12 was received from the Fowler Oil Co. for a cigarette license on February 3, 20XX. This payment
was allocated to the General Fund (100), Licenses and Permits (Account 32180).
Cash received should be deposited intact with the treasurer or in the depository each day. If the
money is deposited with the treasurer, it should be accompanied by the treasurer's copies of the
receipts, and the treasurer should make out the daily deposit. If the money is deposited directly in
the depository by the clerk, a copy of the deposit slip and the treasurer's copies of the receipts should
be furnished to the treasurer.
10 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
General Town/City Receipt
Three part form pre-numbered by printer. Copies are for the following:
Y Person making the payment
Y to the treasurer
Y bound in the receipt book retained by the clerk
Clerk's Office
No. 851
$ 12.00
Lakeview MN, February 3 20 XX
Received From Fowler Oil Company
For Twelve and 00/100 --------------------------------------------------- Dollars
Fund Account Amount
100 32180 12.00
Clerk
Figure 2
Minnesota Office of the State Auditor 11
Accounting Manual For Small Cities and Towns
Receipts Register
The receipts register is a chronological record of cash received. The recommended form for the
register is shown below. It contains an amount column for the total amount of the cash received, and
fund columns for the amounts attributable to each fund. The register provides the information needed
to prepare the monthly or annual summaries of cash received by fund. Figure 3 is a sample section
from a page of the register. Forms may be obtained from printers specializing in forms for
municipalities.
RECEIPTS REGISTER
Month Of: February City/Town of Lakeview Page Reference No. 8
From Whom For What Receipt Account General
Received Purpose Date Number Amount Number Fund Fund
Fowler Oil Company Cigarette License 2/3 851 12 00 100-32180 12 00
Figure 3
Good accounting procedures require that the clerk make entries promptly in the register and ledgers.
Using the same transaction through the recording of the receipt from Fowler Oil Co. to the receipts
register (Figure 3): First enter the name of the person from whom the money was received, date and
receipt number, and amount received.
Figure 3 shows that "Fowler Oil Co. " has been recorded. The next column is for a brief statement
of the source (purpose) of the revenue. Here we have entered "Cigarette License" from the receipt
form and, as on the form, this entry should be simple and to the point. In the next three columns the
date, receipt number, and amount have been entered. The next column is for the fund (100) and
account number (32180) of the receipt (100-32180). The next step is to enter the total in the
appropriate fund column. The recommended chart of accounts is contained in Appendix B of this
publication and is a condensed version of the chart of accounts for cities and towns. The larger, more
complete chart of accounts is available from the Office of the State Auditor.
12 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
Receipts Ledger
The receipts ledger is designed to provide a classification of revenues by source for each fund. A
ledger card is prepared for each major revenue source. The forms are sufficiently flexible so that they
may be used for all funds. Figure 4 is a sample section from a page of the receipts ledger for the
General Fund. Figure 5, on page 14, shows the entire procedure for recording the cash receipts
example: receipt form, cash receipts register, and cash receipts ledger.
RECEIPTS LEDGER
General Fund
Account No. 100-32180 Sheet No. 1
Source Original Budget 144.00
Account Name Cigarette License Fees Revised Budget
Receipt Amount Month to Date Year to Date Budget
Date No. Received From Received Received Received Balance
1/1/XX Budget 144 00
2/3/XX 851 Fowler Oil Company 12 00 12 00 12 00 132 00
Figure 4
Minnesota Office of the State Auditor 13
Accounting Manual For Small Cities and Towns
RECEIPTS
The Flow of Receipt Transactions
1. RECEIPT FORM
Clerk's Office
No. 851
$ 12.00
Lakeview MN, February 3 20 XX
Received From Fowler Oil Company
For Twelve and 00/100 ------------------------------------------------ Dollars
Fund Account Amount
100 32180 12.00
Clerk
2. RECEIPTS REGISTER
Month Of: February City/Town of Lakeview Page Reference No. 8
From Whom For What Receipt Account General
Received Purpose Date Number Amount Number Fund Fund
Fowler Oil Company Cigarette License 2/3 851 12 00 100-32180 12 00
3. RECEIPTS LEDGER
General Fund
Account No. 100-32180 Sheet No. 1
Source Original Budget 144.00
Account Name Cigarette License Fees Revised Budget
Receipt Amount Month to Date Year to Date Budget
Date No. Received From Received Received Received Balance
1/1/XX Budget 144 00
2/3/XX 851 Fowler Oil Company 12 00 12 00 12 00 132 00
Figure 5
14 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
Disbursements
Forms designed to record disbursements are as follows:
1. Claims
2. Order-Checks
3. Disbursements Register
4. Disbursements Ledger
5. Subsidiary Payroll Records.
Claims
All payments must be supported by an approved claim. Claims should be prepared for every check
to be issued. Claims should be approved by the city council or town board regularly and a list of the
approved claims should be recorded in the minutes. After a claim has been approved a check should
be prepared, the claim should be marked "PAID,” and the date and check number entered on the
claim and coded for posting.
Order-Checks
The prescribed order-checks should be pre-numbered so that it is possible to account for all order-
checks drawn on the bank account. A sample order-check, including the endorsement statement
printed on the reverse side, is shown in Figure 6. After obtaining the appropriate signatures, enter
the order-check into the disbursements register.
ORDER CHECK
ORDER CHECK No. 7333 The undersigned payee,
in endorsing this order
City of Lakeview, MN 55555 February 15, 20XX check, declares that the
same is received in
Received From Gopher Welding Supply $ 12.90 payment of a just and
For Twelve and 90/100 ---------------------- Dollars correct claim against the
(City/Town) of ________
Fund Account Amount Mayor and that no part of such
claim has heretofore been
100 43100-210 12.90
paid.
Treasurer
Clerk Back Side of Check
Figure 6
Minnesota Office of the State Auditor 15
Accounting Manual For Small Cities and Towns
Disbursements Register
The disbursements register is a chronological record of disbursements. The recommended form is
shown in Figure 7. This register contains columns for the payee, date, order-check number, amount
paid, account number, and fund. The transaction to "Gopher Welding Supply " has been entered,
showing the payee, date, check number, and amount. The account number column is for the fund
(100), and account number (43100) street expenditures, and object code (210) supplies: (100-43100-
210). Entries should be recorded promptly in order to provide the city council or town board with
current financial information. The disbursements register shown in Figure 7 includes an example of
the posted transaction.
DISBURSEMENTS REGISTER
Month February City/To Lakeview Page Reference No. 8
Check Account General
To Whom Drawn Date Number Amount Number Fund Fund
Gopher Welding Supply 2/15 7333 12 90 100-43100-210 12 90
Figure 7
16 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
Disbursements Ledger
Disbursements ledgers are similar in function to receipts ledgers in that they provide a classification
of the transaction. While receipts are classified by source, disbursements are classified by function,
activity and object. Function relates to the purpose of the expenditure and activity relates to the
specific work performed to accomplish the function. A sample of a recommended disbursements
ledger card is shown in Figure 8.
When disbursements are posted to a disbursements ledger the relationship between the actual amount
disbursed and the budgeted amount can readily be determined.
When the entries in the disbursements register have been completed, checked, and balanced, the
clerk should post from the register to the ledger. Posting should be done on a regular basis, at least
monthly. It is not necessary to post in detail, but rather a summary posting of totals by fund, account
number, and object may be made. A monthly recap may be prepared in the disbursements register,
summarizing transactions for the month by fund and account. This can then serve as the posting
source to the ledgers.
DISBURSEMENTS LEDGER
General Fund
Account No. 100-43100-210 Sheet No. 1
Activity Street Maintenance Original Budget 1,800
Object Operating Supplies Revised Budget
Check Amount Month to Date Year to Date Budget
Date No. Description Disbursed Disbursed Disbursed Balance
1/1/XX Budget 1,800 00
2/15/XX 7333 Gopher Welding Supply 12 90 12 90 12 90 1,787 10
Figure 8
Minnesota Office of the State Auditor 17
Accounting Manual For Small Cities and Towns
DISBURSEMENTS
The Flow of Disbursement Transactions
1. CLAIM
CLAIM Claim Number: 7333
City of Lakeview County of Washington
To: Gopher Welding Supply
100 Ash Street
Lakeview, Minnesota 55555
100-43100-210 2/12/20XX Gopher Welding Supply 12 90
Audited and Allowed in the sum of $12.90
Mayor
Clerk
DISTRIBUTION OF EXPENSE
Fund Account Number Amount Paid by order check number 7333
100 43100-210 12.90 Filed in my office this 15th
day of February 20XX
Clerk
DECLARATION
I declare under penalties of law that this account, claim of demand is just and corrrect and that no part of it has been paid.
Date Signature of Claimant
2. ORDER CHECK
ORDER CHECK No. 7333 The undersigned payee, in endorsing this order
check, declares that the same is received in payment
of a just and correct claim against the (City/Town)
City of Lakeview, MN 55555 February 15, 20XX of ________ and that no part of such claim has
heretofore been paid.
Received From Gopher Welding Supply $ 12.90
For Twelve and 90/100 ---------------------- Dollars
Fund Account Amount Mayor
100 43100-210 12.90
Treasurer
Clerk Back Side of Check
3. DISBURSEMENTS REGISTER
Month Of: February 20XX City/Town of Lakeview Page Reference No. 8
To Whom Drawn Date Check Number Amount Account Number General Fund Fund
Gopher Welding Supply 2/15 7333 12 90 100-43100-210 12 90
4.DISBURSEMENTS LEDGER
General Fund
Account No . 100-43100-210 Sheet No. 1
Activity Street Maintenance Original Budget 1,800
Object Operating Supplies Revised Budget
Date Check No. Description Amount Disbursed Month to Date Year to Date Budget Balance
1/1/XX Budget 1,800 00
2/15/XX 7333 Gopher Welding Supply 12 90 12 90 12 90 1,787 10
Figure 9
18 Minnesota Office of the State Auditor
Accounting Manual For Small Cities and Towns
Enterprise Funds
Enterprise funds account for activities that are usually financed and operated in a manner similar to
private business enterprises or when it is important to control or measure costs. The accrual basis
of accounting as used for business enterprises is also recommended for municipal enterprise funds.
Examples of enterprise funds are water, sewer, and municipal liquor operations. Individual types
of enterprise services should be accounted for in separate funds. This separation is necessary to
determine the cost of providing each service and to assure that the resources of one enterprise are
not used by another.
The financial statements of the enterprise fund should include a balance sheet, an operating statement
and a statement of changes in financial position. The operating statement shows the operating
revenues, (user charges), operating expenses (including depreciation), operating income, non-
operating revenues and expenses, and net income. See Figure 10 below.
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS
Water Fund
Operating revenues ................................................................................................. 82,817
Operating expenses ................................................................................................. 84,643
Operating Income ............................................................................................... (1,826)
Non-operati


Use: 0.4044