In my last article, I discussed the complexity of governmental financial statements and what is included in an Annual Comprehensive Financial Report (ACFR). As you read through the ACFR, the first set of financial statements you encounter are the Government-Wide Financial Statements. These consist of the Statements of Net Position and Activities, presenting highly summarized financial information using the full accrual basis of accounting, similar to how businesses report their financial information.
The Statement of Net Position
The Statement of Net Position includes columns for Governmental Activities and Business-type Activities. Generally, Governmental Activities report the financial position and results of operations of activities supported by taxes, grants, fees, and similar types of revenues. In contrast, Business-type Activities report information from activities supported by exchange transactions, such as water and sewer services provided for a fee based on usage.
The Statement of Net Position reports assets, liabilities, and equity (net position) like a business would. However, you will also find sections titled “Deferred Outflows of Financial Resources” and “Deferred Inflows of Financial Resources.” These deferred items are unique to governmental financial statements and are specifically defined by the Governmental Accounting Standards Board (GASB). They represent amounts that will impact changes in net position in future periods.
The flow of the Statement of Net Position is then as follows: Assets + Deferred Outflows – Liabilities – Deferred Inflows = Net Position.
Net Position is further broken down into three classifications:
- Net Investment in Capital Assets: The depreciated value of capital assets less the amount of outstanding liabilities directly associated with the acquisition of capital assets.
- Restricted Net Position: Amounts with outside restrictions on their use from creditors, grantors, contributors, or laws and regulations of other governments, or imposed by law through the government’s own constitutional provisions or enabling legislation.
- Unrestricted Net Position: The remaining balance. Often, the unrestricted net position is a negative balance.
While negative amounts in equity accounts are usually considered a bad thing, my next article will explore some of the amounts reported on the Statement of Net Position that cause the negative balance and why it may not be as concerning as it seems.
