Statement of revenues, expenditures, and changes in fund balance

Definition

The statement of revenues, expenditures, and changes in fund balance is a financial report that summarizes the inflows and outflows of resources in a governmental fund during a specific period. This statement is crucial for understanding how public funds are collected and spent, highlighting the fiscal health of a government entity. It connects revenues generated from taxes and other sources with expenditures for public services, and it also shows how these activities impact the overall fund balance.

5 Must Know Facts For Your Next Test

1. This statement is prepared using the modified accrual basis of accounting, where revenues are recognized when they are available and measurable, while expenditures are recognized when the related liability is incurred.
2. It provides key information for stakeholders, including policymakers and citizens, regarding how well a government is managing its financial resources.
3. The statement helps assess whether current financial resources are sufficient to meet short-term obligations and support ongoing operations.
4. Changes in fund balance indicate whether a government is operating within its means or relying on reserves, which can influence future fiscal decisions.
5. The statement typically appears as part of the comprehensive annual financial report (CAFR), which includes additional details about the government's financial position.

Review Questions

• How does the statement of revenues, expenditures, and changes in fund balance contribute to understanding a government's financial health?
  • The statement provides a clear snapshot of a government's financial activities over a specific period, allowing stakeholders to see how revenues are collected and how those funds are spent. By comparing revenues against expenditures, it highlights whether the government is operating with a surplus or deficit. This information is essential for assessing fiscal sustainability and making informed decisions about future budgets.
• Discuss the significance of changes in fund balance as presented in the statement of revenues, expenditures, and changes in fund balance.
  • Changes in fund balance reveal the overall financial position of a governmental entity by indicating whether it has increased or decreased its net resources during the reporting period. A growing fund balance suggests that a government is managing its finances prudently, while a declining balance may raise concerns about fiscal sustainability. This information is crucial for policymakers who need to plan for future spending and resource allocation.
• Evaluate how the use of modified accrual accounting affects the interpretation of the statement of revenues, expenditures, and changes in fund balance.
  • Modified accrual accounting impacts this statement by recognizing revenues when they are measurable and available, rather than when earned. This approach helps ensure that only current financial resources are reported, making it easier to assess short-term fiscal health. However, it may also obscure long-term obligations and liabilities, making it essential for users to consider additional financial statements to gain a comprehensive understanding of a government's overall fiscal situation.

Related terms

Fund Balance: The difference between the assets and liabilities of a fund, representing the net resources available for future use.

Budgetary Control: A process that ensures that actual spending aligns with budgeted amounts, helping to manage financial resources effectively.

Governmental Funds: Funds used by governmental entities to account for tax-supported activities, focusing on current financial resources.