An Introduction to Federal Financial Statements

When it comes to financial statements, the balance sheet of federal agencies will be the closest to resembling a commercial financial statement. The balance sheet shows that assets equal liabilities plus net position. Net position is taking the place of equity from the standard commercial balance sheet. Now, your net position will include your total unexpended appropriations and total cumulative results of operations.

Unexpended Appropriations include the portion of the entity's appropriations represented by undelivered orders and unobligated balances. Unexpended appropriations on the Balance Sheet must equal unexpended appropriations on the Statement Of Changes In Net Position.

Cumulative Results of Operations reflect the net results of operations since inception plus the cumulative amount of prior-period adjustments. This includes the cumulative amount of donations and transfers of assets in and out without reimbursement. The cumulative results of operations on the Balance Sheet should equal the cumulative results of operations on the Statement of Changes in Net Position.

The statement of net cost shows the gross cost and revenues for the major programs of an entity. While costs are easy to grasp, it is a good point to remind those new to the federal government that the government can earn revenue outside of just collecting taxes. Earned or exchange revenues arise when an entity provides goods or services to the public or another Government entity for a price. The total amount of exchange revenue is reported on the Statement Of Net Cost, regardless of whether the entity can retain the revenues as a whole or in part.

The Statement Of Changes In Net Position, which reports the change in net position during the reporting period, is similar to the statement of change in retained earnings in commercial statements. This similarity can be a helpful reference point for those familiar with commercial statements. As mentioned earlier, the Statement Of Changes In Net Position explains in detail what contributed to the change in net position in the current period, providing a comprehensive understanding of the financial changes.

The Statement Of Budgetary Resources shows the various budgetary resources available in the period, their status, and net outlays. Only four types of Budgetary authority are available as Budgetary Resources. The information used to prepare the Statement Of Budgetary Resources should be prepared in coordination with the agency budget office. It must be consistent with the budgetary information reported to GTAS during the 4th quarter reporting window, which includes the revision window. GTAS information produces the 4th quarter SF 133, Report on Budget Execution and Budgetary Resources.

The Statement Of Custodial Activity is required for entities that collect non-exchange revenue for the General Fund, a trust fund, or other recipient entity, e.g., taxes and duties collected by the Internal Revenue Service or Customs and Border Protection Agency. The Statement Of Custodial Activity is also required for entities that collect certain exchange revenues, including oil and gas revenues, as specified in Statements of Federal Financial Accounting Standards 7. Collecting entities do not recognize revenue collections that have been or should be transferred to others as revenues; instead, the sources and disposition of the collections are reported on the Statement Of Custodial Activity.

A Statement Of Social Insurance is required for the following social insurance programs:
• Old-Age, Survivors, and Disability Insurance (OASDI or Social Security);
• Hospital Insurance and Supplementary Medical Insurance, collectively known as
Medicare;
• Railroad Retirement benefits; and
• Black Lung benefits.

The Statement Of Social Insurance should present the actuarial present values for all current and future participants for the projection period.

We've covered the six financial statements that form the backbone of US federal government accounting:

1. Balance Sheet: Similar to commercial statements, showing assets, liabilities, and net position.
2. Statement of Net Cost: Revealing program costs and revenues, including non-tax income.
3. Statement of Changes in Net Position: Explaining financial changes over the reporting period.
4. Statement of Budgetary Resources: Detailing available resources, their status, and outlays.
5. Statement of Custodial Activity: Reporting on collected revenues for other entities.
6. Statement of Social Insurance: Projecting long-term finances for major social programs.

These statements work together to provide a comprehensive view of federal finances, balancing familiar concepts with government-specific reporting needs. While they may seem complex, understanding these statements is key to grasping how our government manages its finances.