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HomeMy WebLinkAboutORDINANCE 0887-1983e— V .' 11 Suggest ed by: Adfa ini at rat ton CITY (IF KEN)%I ORDINANCE NO. 887-83 AN ORDINANCE OF THE COUNCIL OF THE CIT/ OF KENAI, ALASKA, AMENDING KMC 7.25 BY ADDING A NEW SECTION ESTABLISHING ACCOUNTING AND BUDGETING PROCEDURES FOR ENCUMBRANCES. WHEREAS, the National Council on Governmental Accounting (NCGA) has issued Statement p1, "Governmental Accounting and Financial Reporting Principles", which has been acknowledged as the primary authoritative statement of the application of generally accepted accounting principles for state and local governments, and WHEREAS, NCGA Statement #1 does not classify outstanding encumbrances at year and as expenditures or liabilities, but rather no a reservation of fund balance for subsequent year expenditure, and WHEREAS, formal recognition in the City Code of this treatment of encumbrances will simplify financial reporting. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL Or THE CITY OF KENAI, ALASKA that the City of Kenai Code of Ordinances is hereby smendsd by adding a new section to be numbered 7.25.035 which shall read as follows: 7,25.035 Treatment of Year End Encumbrances: Encumbrances outstanding at the` end of any fiscal year are deoignated as nonlopoing appropriations, and are not classified as expenditures or liabilities of the current period. Without any direct action of the City Council, the subsequent year'a annual budget shall be increased by the sum of such year end encumbrances in the appropriate line of the budget. PASSED BY THE COUNCIL OF THE CITY OF AI, AL KA, this 21at day of September, 1983. iri►.. oria s en,Mayor ATTESTS Unet Whelan, City Clor First Reading: September 7, 1983 Second Readings September 21, 1983 Effective Dates October 21, 1983 0 I CITY OF K ENAI 'y �'Od eap tw o f 4"„ I. O. SOX NO K/NAI, AIAfKA 09611 Tit//NON/ 209 • IM MEMO TO: Kenai City Council FROM; Charles A. Brown, Finance Director SUBJECT: Ordinance on Encumbrance Procedures DATE: August 29, 1983 Current accounting practices require that encumbrances open at year end be recorded as a resetvation of fund balance, and not as expenditures. However, it is also required that, where actual data is compered to the budget, the actual data be prepared on the same basis as the budget. Without going into a lot of detail, what this means is that the City's financial statements show expenditures for a given department two ways: with open encumbrances when we compare to the budget and without open encumbrances when no such comparison is made. This is confusing to the reader (not to mention the finance director from time -to -time). What this ordinance does is amend the budget so that we can report all encumbrances on a basis consistent with generally accepted accounting principles. The effect, as it would appear on the financial statement where actual is compared to budget, is shown below. Assume a police car is appropriated in Year #1, an open PO exists at the end of Year #1, but it in received in Year 02. OLD Kum Year # 1 Budget Actual Difference $10,00h $10,000 $ -0- Year # 2 Budget Actual Difference $ -0- $ -0- $ -0- a -- -4= � m Xi9v METHOD Year p Budget Actual Difference °vI0,00C $ -0- 010,000 Year # 2 Budget Actual Difference $10,000 $10,000 $ -0- The important thing for the Council to understand is that this is needed for financial statement presentation. It does not change the way the various departments spend money. In fact, they will notice no change. Most important, it does not give them any more money.