The basis of any accounting system (manual or electronic) is a systematic use of numeric or alpha numeric segments organized in such a way that reporting for budget, financial reports and other general information can be easily accomplished. Accounting software packages may or may not come with a predefined account numbers. It is the responsibility of the city to create or use a chart of accounts that fulfills the reporting requirements in Iowa, complies with Generally Accepted Accounting Practices (GAAP) and federal reporting requirements.
In order to provide the council with valid and timely financial information to assist in making sound decisions, the underlying accounting system must be property designed to efficiently report data that is meaningful and reflects the accurate financial activity of the city. The basics for an orderly design of the accounting systems are known as the Chart of Accounts (COA). A COA is a listing of all the accounts in the general ledger, and each account has a unique reference number assigned. To set up a chart of accounts or to understand how a COA works to generate reports, one needs to define the various accounts to be used by the city. Then to finish the process, the appropriate account must be attached to every transaction.
When the Iowa Uniform Chart of Accounts was revised in 2003, great deliberation was given to each segment to be used in combination with other segments to make up a number that can identify each account. The City Finance Committee (CFC) also considered GAAP and the Internal Revenue Service requirements to monitor travel, advertising, attorney fees, moving and several other expenses to be tracked on individual accounts for required reporting needs. Due to the diversity of the cities in Iowa and the differences in software, the COA is not required or mandated to be used; however, the principals of accounting still apply to any COA. The COA also offers some flexibility in the amount of detail each jurisdiction maintains, as long as it is sufficient to fulfill the required reporting needs.
One caution: while deciding on the amount of detail needed or when creating new accounts, think it through. Ask, “What reporting or comparisons will be beneficial by creating another account?” There is a tendency to create too many accounts and too much useless detail. For example, suppose there is an account for operating supplies. Do you need to create an account for office supplies to keep it separate? Probably not in most cities, but in some larger cities the answer might be yes. On the other hand, a city should keep the different pension systems separate; Iowa Public Employees Retirement System funds should be in a separate account from Iowa City/County Management Association pensions because the separation for efficient reporting is important.
Here are some reports your accounting system should be able to produce for each fund:
The Statement of Revenues, Expenditures and Changes in Fund Balances
- Revenues
- Expenses
- Changes in Fund Balances
Budget to Actual Activity Reports (Revenues and Expenditures)
- Current Monthly Activity
- Year to Date Activity
- Budgeted Amount
- Amount of Budget Remaining
A government version of the balance sheet contains:
- Assets
- Liabilities
- Fund Equity
See City Budget Funds (for a description of each of the fund categories listed below)
| Fund Category Account Range | |
|---|---|
| General Fund | 100 to 109 |
| Special Revenue Funds | 110 to 199 |
| Debt Service Funds | 200 to 299 |
| Capital Project Funds | 300 to 499 |
| Permanent Funds | 500 to 599 |
| Enterprise and Utility Funds | 600 to 799 |
| Internal Service Funds | 800 to 899 |
| Fiduciary Funds | 900 to 999 |
Revenue and expense accounts then follow the standard of first listing the items most closely related to the operations of the city. For example, property taxes are listed as the primary revenue to support governmental activities, while wages are one of the most common expenses.
| Revenues | |
|---|---|
| General Property Taxes | 4000 to 4003 |
| Non-Voted Levies | 4005 to 4014 |
| Voted Levies | 4020 to 4030 |
| Tax Increment Financing | 4050 |
| Other City Taxes | 4060 to 4090 |
| Licenses and Permits | 4100 to 4190 |
| Use of Money and Property | 4300 to 4340 |
| Intergovernmental | 4400 to 4480 |
| Charges for Services | 4500 to 4550 |
| Special Assessments | 4600 |
| Miscellaneous Revenues | 4700 to 4794 |
| Other Financing Sources | 4800 to 4820 |
| Transfers In | 4830 |
| Expenditure Function (Legal Level of Expenditure in Iowa) | |
|---|---|
| Public Safety | 110 to 199 |
| Public Works | 210 to 299 |
| Health & Social Services | 310 to 399 |
| Culture & Recreation | 410 to 499 |
| Community & Economic Development | 510 to 599 |
| General Government | 610 to 699 |
| Debt Service | 710 |
| Capital Projects | 750 |
| Business Type Activities | 810 to 899 |
| Transfers Out | 910 |
| Non-Program General Revenue | 950 |
Other accounts used in many accounting systems are referred to as “subsidiary or supplementary” accounts. These accounts are a combination of account segments that show the detail or line item of many trial balance reports. Some cities use this level of detail to review individual spending levels over multiple years. One drawback to line item detail analysis for budgeting is that service level delivery in one year may be adversely affected by weather, changes in service focus or other emergencies.
| Expense Line Items/Objectives | |
|---|---|
| Salary and Wages | 6010 to 6099 |
| Employee Benefits, Costs & Staff Development | 6110 to 6299 |
| Staff Development | 6210 to 6299 |
| Repair, Maintenance & Utilities | 6310 to 6399 |
| Contractual Services | 6401 to 6499 |
| Commodities | 9710 to 6799 |
| Capital Outlay | 9710 to 6799 |
| Debt Service | 6801 to 6899 |
| Transfers Out and Interfund Loans | 6910 to 6920 |
An example of how a revenue account might look using this COA would be: General Fund Property Taxes 101-4000
An expenditure account might look like: General Fund, Police Department, Wages 101-110-6010
Though a council person will probably never have to create an account, it is important to understand how information is recorded and what reports are available. The financial position and performance of a business is reported through accounting statements prepared to communicate information to a wide range of users in making economic decisions. Likewise a city should generate reports for the city council, interested citizens, city staff and state and federal agencies (which may require specialized reports) to communicate the performance of the city.
