HomeMy WebLinkAboutFIN 2018-02-21 Item 2B - Discussion - Financial DefinitionsCity of Tukwila
INFORMATIONAL MEMORANDUM
TO: Finance Committee
CC: Mayor Ekberg
FROM: Peggy McCarthy, Finance Director
BY: Vicky Carlsen, Deputy Finance Director
DATE: February 6, 2018
SUBJECT: Financial Definitions
Issue
Allan Ekberg, Mayor
At the January 17,2018 Finance Committee, staff was asked to provide definitions of terms regularly used
when discussing financial matters in the City.
Discussion
The following terms are used regularly during financial discussions.
Allocated Budget
The monthly budget for the current year is calculated by analyzing the spending pattern from the previous
year and applying the same spending pattern to the current year. For example, if 10% of the budget was
spent in January of the previous year, then it would be assumed that 10% of the current year budget would
be spend in January of the current year.
Annual Budget
The annual budget is the original adopted budget plus any amendments adopted by Council.
Prorated Budget
The budget for the current year is simply divided by 12 and assumes that each month 12% of the budget
would be spent.
Spend Patterns
How much a department or line item spends each month over the course of a year.
Variance
The difference between the allocated budget and actuals.
For additional information, the Glossary of Terms found at the back of the Biennial Budget document has
been included as an attachment.
Recommendation
For information only.
Attachments
Glossary of Terms — 2017-2018 Biennial Budget document.
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GLOSSARY OF TERMS
ACCOUNT. A classification established for the purpose of recording revenues and expenditures.
ACCOUNTING SYSTEM. The methods and records established to identify,aaoennb|a.onalyze.daeaifv.
record and report a government's transactions and to maintain accountability for the related assets and
liabilities.
ACCRUAL BASIS. The recording of the financial effects on a government of transactions and other
events and circumstances that have cash consequences for the government in the periods in which those
transactions, events, and circumstances occur, rather than only in the periods in which cash is received
or paid by the government.
ANNUAL BUDGET. A budget applicable to a single fiscal year.
APPROPRIATED BUDGET. The expenditure acreated by the appropriation bills or ordinances,
which are signed into lawand the related estimated revenues. The appropriated budget would include
all reoervgs, inanofena, aUooationo, supplemental appropriations and other legally authorized legislative
and executive changes.
APPROPRIATION. A legal authorization granted by a legislative body to make expendituresandto|nour
obligations for specific purposes. An appropriation usually is limited in amount and time it may be
expended.
ASSESSED VALUATION. A valuation set upon real estate or other property by a government as a basis
for levying taxes.
BALANCED BUDGET. A budget with revenues equal to expenditures. Total Revenues are equal to or
greater than Total Expenses.
BARS. Budgeting, Accounting & Reporting System. Refers to the accounting rules established by the
Washington State Auditor's Office, including a prescribed chart of accounts.
BASIS OF ACCOUNTING. A term used in reference to when revenuee, expenditures, expenses and
transfers -and the related assets and liabilities -are recognized in the accounts and reported in the financial
statements. GpecUioo|/y, it relates to the timing of the measurements rnmde, regardless of the nature of
the nneoeurernont, on either the accrual method for proprietary funds or modified accrual method for
governmental funds.
BENEFITS. Costs paid by the City on behalf of its employees. Examples include: medical and dental
insurance, retirement, deferred compensation, life insurance and worker's compensation.
BIENNIAL BUDGET. A budget applicable to a two-year period.
BUDGET. A plan of financial operation embodying an estimate of proposed expenditures for a given
period and the proposed means of financing them. Used without any modifier, the term usually indicates
a financial plan for a single fiscal year.
BUDGET AMENDMENT. The method used to make revisions to the adopted budget. Adjustments are
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BUDGET CALENDAR. The schedule of events that need to occur and the date or period of time for
each to occur in the preparation, review and adoption of a budget.
BUDGET DOCUMENT. The instrument used to present a comprehensive financial program to the
appropriating governing body. The budget document usually consists of three parts. The first part
contains a message from the budget -making authority, together with a summary of the proposed
expenditures and the means of financing them. The second consists of schedules supporting the
summary. These schedules show in detail the past years' actual revenues, expenditures and other data
used in making the estimates. The third part is composed of drafts of the appropriation, revenue and
borrowing measures necessary to put the budget into effect.
BUDGET MESSAGE. A general discussion of the proposed budget as presented in writing by the
budget -making authority to the legislative body. The budget message should contain an explanation of
the principal budget items, an outline of the government's actual financial experience during the past
period and its financial status at the time of the message, and recommendations regarding the financial
policy for the coming period.
BUDGETARY CONTROL. The control or management of a government or enterprise in accordance
with an approved budget to keep expenditures within the limitations of available appropriations and
available revenues.
CAPITAL ASSETS. Long term assets such as land, improvements to land, easements, buildings and
related improvements, vehicles, machinery and equipment, infrastructure, and all other tangible or
intangible assets that are used in operations and that have initial useful lives extending beyond a single
reporting period. See also Fixed Assets.
CAPITAL EXPENDITURES. Expenditures of current financial resources for constructing or purchasing
capital assets. Under the modified accrual basis of accounting these acquired assets appear as
expenditures in the fund statements, however under the current reporting model these acquired assets
are recognized as assets in the basic financial statements.
CAPITAL IMPROVEMENT PROGRAM. A program for capital expenditures to be incurred each year
over a fixed period of years to meet capital needs arising from the long-term work program or other capital
needs. It sets forth each project or other contemplated expenditure in which the government is to have
a part and specifies the resources estimated to be available to finance the projected expenditures.
CAPITAL PROJECTS FUND. A fund created to account for financial resources to be used for the
acquisition or construction of major capital facilities.
CAPITALIZATION THRESHOLD. Dollar value at which a government elects to capitalize tangible or
intangible assets that are used in operations and that have initial useful lives extending beyond a single
reporting period. The City's capitalization threshold is established at a cost of $5,000.00, or greater.
CONTINGENCY FUND. An account set aside for emergencies or other unanticipated needs not
otherwise included as part of the budget.
DEBT. An obligation resulting from the borrowing of money or from the purchase of goods and services.
Debts of governments include bonds, time warrants and notes.
DEBT SERVICE FUND. A fund established to account for the accumulation of resources for, and the
payment of, general Tong -term debt principal and interest.
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DELINQUENT TAXES. Taxes remaining unpaid on and after the date to which a penalty for nonpayment
is attached. Even though the penalty may be subsequently waived and a portion of the taxes may be
abated or canceled, the unpaid balances continue to be deinquent taxes until aboted, canms|ed, paid or
converted into tax liens.
EXPENDITURES. Decreases in net financial resources. Expenditures include current operating
expenses requiring the present or future use of net current assets, debt service and capital outlays, and
intergovernmental grants, entitlement and shared revenues.
FISCAL YEAR. A 12 -month period to which the annual operatingbudget applies and at the end of which
a government determines its financial position and the results of its operations.
FIXED ASSETS. Long-lived tangible assets obtained or controlled as a result of past transactions, events
or circumstances. Fixed assets include bui|dingo, aquipnnerd, improvements other than buildings and
land. See also Capital Assets.
FULL-TIME EQUIVALENT (FTE). An employment indicator that translates the total number of hours
worked in a year by all ernp|oyeas, including part-time vvorkera, to an equivalent number of work years.
For example, one FTE equals 2.O8Ohours and .75FTE equals 1.5OOhours.
FUND. A fiscal and accounting entity with a self -balancing set of accounts in which cash and other
financial resourcan, and related liabilities and residual equUMes, or balances, and changes therein, are
recorded and segregated to carry on specific activities or attain certain objectives in accordance with
special regu|at|onn, restrictions or limitations.
FUND BALANCE. The difference between assets and Iiabilities reported in a governmental fund. Fund
balances are either designated to a particular purpose or undesignated as to the remaining un-
appropriated balance of the fund after accounting for the designated funds.
GENERAL FUND. The fund used to account for all financial reoourceo, except those required to be
accounted for in another fund.
GENERAL LONG TERM DEBT. Long term debt expected to be repaid from governmental funds.
GENERAL OBLIGATION BONDS. Bonds that are secured by the Iocal government's full faith and
credit to use legally available resourneo, including tax revenues to repay bond holders.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). Uniform minimum standards and
guidelines for financial accounting and reporting. The primary authoritative body on the application of
GAAP to state and local governments is the Government Accounting Standards Board.
GOVERNMENTAL FUNDS. Funds generally used to account for tax supported activities. There are
five different types of governmental funde, of which the city uses four of these. The general fund, is the
main operating fund of the city. The special revenue funds, are used to account for proceeds from specific
sources to be used for legaily restricted purpooas, but normally not for mjor capital projects. The debt
service funda, which are for the accumulation of resources to pay principle and interest on the City's
general long term debt. The capital project funds, which are used for the acquisition or construction of
major capital facilities.
LEGAL LEVEL OF BUDGETARY CONTROL. The level at which spending in excess of b
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amounts would be a violation of law. The legal level of budgetary control is at the fund level.
LEVEL OF BUDGETARY CONTROL. One of the three possible levels of budgetary control and authority
to which organizations, programs, activities and functions may be subject. These levels of budgetary
control are (a) appropriated budget, (b) legally authorized non -appropriated budget process or (c) non -
budgeted financial activities, which are not subject to the appropriated budget and the appropriation
process or to any legally authorized non -appropriated budget review and approval process, but still are
relevant for sound financial management and oversight.
LEVY. (1) (Verb) To impose taxes, special assessments or service charges for the support of
government activities. (2) (Noun) The total amount of taxes, special assessments or service charges
imposed by a government.
MODIFIED ACCRUAL BASIS. The basis of accounting associated with the governmental fund -type
measurement focus. Under it, revenues and other financial resources are recognized when they become
susceptible to accrual, that is when they become both "measurable" and "available" to finance
expenditures of the current period. Expenditures are recognized when the fund liability is incurred except
for inventories of materials and supplies that may be considered expenditures either when purchased or
when used. All governmental funds, expendable trust funds and agency funds are accounted for using
the modified accrual basis of accounting.
OBJECT DESCRIPTION. The classification of expenditures on the basis of categories called line -items
or objects -of -expenditure (e.g., 10 -Salaries & Wages, 20 -Personnel Benefits, 40 -Other Services &
Charges, 60 -Capital Outlay, etc.) and within each category more detailed line -items (e.g., salaries, travel,
telephone expense, etc.).
OPERATING BUDGET. Plans of current expenditures and the proposed means of financing them. The
annual operating budget is the primary means by which most of the financing, acquisition, spending and
service delivery activities of a government are controlled. The use of annual operating budgets is usually
required by law. Even when not required by law, however, annual operating budgets are essential to
sound financial management and should be adopted by every government.
OPERATING TRANSFERS. All interfund transfers other than residual equity transfers (e.g., legally
authorized transfers from a fund receiving revenue to the fund through which the resources are to be
expended).
PROGRAM BUDGET. A budget wherein expenditures are based primarily on programs of work and
secondarily on character and object class.
PROPRIETARY FUND TYPES. Sometimes referred to as income determination or commercial -type
funds, the classification used to account for a government's ongoing organizations and activities that are
similar to those often found in the private sector. The GAAP used are generally those applicable to similar
businesses in the private sector and the measurement focus is on determination of net income, financial
position and changes in financial position.
REVENUES. (1) Increases in the net current assets of a governmental fund type from other than
expenditure refunds and residual equity transfers. Also, general long-term debt proceeds and operating
transfers in are classified as "other financing sources" rather than as revenues. (2) Increases in the net
total assets of a proprietary fund type from other than expense refunds, capital contributions and residual
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equity transfers. Also, operating transfers in are classified separately from revenues.
SPECIAL ASSESSMENTS. A compulsory levy made against certain properties to defray all or part of
the cost of a specific capital improvement or service deemed to benefit primarily those properties.
SPECIAL REVENUE FUND. A fund used to account for the proceeds of specific revenue sources (other
than expendable trusts or major capital p jecta) that are legally restricted to expenditure for specified
purposes. GAAP only require the use of special revenue funds when legally mandated.
TAXES. Compulsory charges levied by a government to finance services performed for the common
benefit. This term does not include specific charges made against particular persons or property for
current or permanent benefits, such as special assessments. Neither does the term include charges for
services rendered only to those paying such charges (e.g., sewer service charges).
TAX LEVY ORDINANCE. An ordinance through which taxes are levied.
TAX RATE. The amount of tax stated in terms of a unit of the tax base (e.g., specified amount per 81.ODO
of assessed valuation of taxable property).
TAX RATE LIMIT. The maximum rate at which a government may levy a tax. The limit may apply to
taxes raised for a particular purpose or to taxes imposed for all purposeo, and may apply to a single
government or to a class of governments operating in a particular area. Overall tax -rate limits usually
restrict levies for all purposes and of all govarnnnente, state and |oco|, having jurisdiction in a given area.
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