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Joined: 08 May 2009
Online Status: Offline
Posts: 34
Posted: 19 Jul 2009 at 10:57 | IP Logged  

I put together a word document on government and capital leases and want to share it to see if anyone has any comments OR if I have something incorrect. Also, be sure to comment if you like it!


Government & Capital Leases

Signing of Lease & Transfer of Equipment

Government Wide & Proprietary Funds - Record same as GAAP

Dr. Fixed Asset (FMV)

    Cr. Capital Lease Obligation (PV of Payment = FMV Fixed Asset)

Governmental Funds Record on Modified Accrual Basis  (In Fund of Purchase)

Dr. Expenditure Capital Assets

    Cr. Other Financing Sources- Capital Lease

Payment Due

Government Wide & Proprietary Funds - Record same as GAAP

Dr. Interest Expense

    Cr. Interest Payable

Governmental Funds Record on Modified Accrual Basis (In Debt Service Fund)

Dr. Expenditure (Principal & Interest Amount Due)

    Cr. Payable to Lessor

Payment Made

Government Wide & Proprietary Funds - Record same as GAAP

Dr. Interest Payable

Dr. Capital Lease Obligation

    Cr. Cash

Governmental Funds Record on Modified Accrual Basis (In Debt Service Fund)

Dr. Payable to Lessor

    Cr. Cash


Total expenditures for Governmental Funds during a capital lease will be the interest and the principal TWICE. This is in line with the accounting that would happen if the Governmental Fund borrowed the money for the purchase and then purchased the fixed asset and repaid the loan. See below:

Borrowing of Funds                    (In Fund of Purchase)

Dr. Cash

   Cr. Other Financing Sources

Purchase of Asset                       (In Fund of Purchase)

Dr. Expenditure

   Cr. Cash

Repayment of Loan                    (In a Debt Service Fund)

Dr. Expenditure (Interest & Principal)

   Cr. Cash


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Joined: 20 Jul 2009
Online Status: Offline
Posts: 35
Posted: 21 Jul 2009 at 13:27 | IP Logged  

Usually debt service funds are accumlations for major L-T debt like general obligation bonds. I don't think I've ever seen one used for a capital lease (although I guess you could if you wanted). Debt service payments don't have to come out of a debt service fund.  Remember, the use of a debt service fund is almost always permitted rather than required.

Also, you would never make an entry that credited cash on the government wide basis.  Cash on your fund financial should = cash on your Government-wide.  In your payment (if you used a debt service fund), you would of at some point made a transfer to the debt service fund from the the fund that purchased the asset (assuming you want to use a debt service fund).  Then the debt service fund would make the payment of the lease.  In your example you are crediting cash twice for payment.  I wouldn't use an interest payable, either.  When payment is due, you just make the payment.  You would accrue interest at year end for the amount due between payment dates.  I guess if you had a payment due and you weren't going to pay it until after year end you could create a payable for the entire payment amount and reduce your lease obligation on the GW (since cash will be expended out of current financial resources), but I don't see this happening very often.

I don't understand your last set of entries.  Is that for if one fund borrowed from another fund? Interfund loans are taken care of on the balance sheet only (through advances or due to/from) with no effect on the operating statement.  This would be an interfund transaction.  Now if one fund gives to another fund without the expectation of repayment, you would do a transfer.  You would never charge interest expense to another fund (interest would be included in the due to/from account).

I've actually been involved in preparing a CAFR at a state level, but I don't work for the State anymore, so my memory could be a bit foggy, so take it for what it is worth.

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