PROFESSOR: These notes, we'll talk about the types of accounts that school districts use in their accounting system and in their budgeting operations. There are two types of accounts. We're going to start with the what are called balance sheet accounts. These are assets, liabilities, and fund balance.

And these first ones are pretty much what I think you would expect them to be. The assets are resources that the district owns, that have some value to the district. They are owned and controlled by the district. One point to note is that the assets are valued at their time of acquisition. So when you, for example, the district might buy a piece of land and hold it for 20 years, and during that time the land might have appreciated substantially since the town grew up around it. If you bought the land for $1 million, and now it's worth, on the market, $3 million, the district carries the value of the asset at the original purchase price, which would be $1 million in this example.

Now similar to all other accounts, assets have a coding system. In each number, each asset has account code that is assigned to it, and you can find these in the accounting manual. This allows each asset to be individually identified, and recorded, and kept track of.

There are two types of assets. One are called current assets. These are assets that you expect to have turnover, or be sold, or could be sold within one year. And they are either cash or items that could be turned into cash readily quickly.

The second type of assets are called capital and infrastructure assets. These are long-term assets. They used to be called long-term assets. Their new name is capital and infrastructure assets. These are items that the district owns and expects to have for a long period of time. And they would be things like school buildings, long term equipment, things like that.

The accounting system classifies all current assets as a 100 code. And below that they are broken down into further divisions. Investments might be 110, taxes receivable 120, and so forth. Capital and infrastructure assets use the accounting code for assets of 200. Again, those are further broken down to 20 buildings and building improvements, for example. You can find all of those in the accounting manual, and see the various kinds of assets that the district has.

On the other side of the balance sheet, are the liabilities. This is opposite from assets in that these are the things, activities, items, that the district owes to other people. They're debts or things that might become debts, so the school district has to pay those off at some time. Again similar to assets, each liability has its own account code. These are laid out in the accounting manual. Again this allows each liability to be recorded and identified very promptly.

Similar to assets, liabilities have two general classifications. One current liabilities, with a code 400. These are items that are expected to be paid off within a year, items that the district owes. They might be things like a loan payable that's due within a year, things of that nature.

Long-term liabilities are the 500 codes. They have obligations-- due dates, that are some time beyond one year-- the things in the future. These might be long-term bonds, other kinds of lease obligations that the district might have. Again you can check those in the accounting manual, and see what kinds of things are covered under liabilities.

The third type of balance sheet account, and we'll see why they're balance sheet in just a minute. They're called fund balances. And very simply, a fund balance is the difference between the sum of the assets and the sum of liabilities. And if the assets are greater than liabilities, then the fund balance is positive. If the liabilities are greater than assets, then the fund balance is negative. Districts are not allowed to have a negative fund balance. In the private sector, that would be called bankruptcy.

Districts are not allowed to go bankrupt. So districts would take other actions to avoid that.

But in any event, there are the fund balance in order to show the difference between assets and liabilities. The larger the fund balance, the greater financial strength, or the better financial position the district is in. They are often used by districts to set money aside for particular purposes, or to act as a contingency fund to deal with various emergencies, types of expenditures that might come up during the year, that were not planned for. Things like a big storm that blows off your gym roof. You need to replace that quickly, before the whole building gets ruined. So you can dip into the fund balance and cover that, even though it's not in your budget.

Fund balance, the level of fund balance, is set by board policy with some restrictions. The legislation in Pennsylvania has established a maximum of 8% of total expenditures as the level of fund balance that's permitted for school districts. That is to prohibit districts from over-taxing, at least that's in the legislature's view, over-taxing and hoarding the money. So there's a maximum of 8%.

The school districts can maintain multiple kinds of fund balances to serve different purposes. There are at least five different kinds of fund balances with different kinds of restrictions on each. And we'll go through them very quickly, from the most restrictive, to the least restrictive.

There's a group called an 810 coding system, it's fund balances are 800's, called non-spendable fund balances. These are non-spendable monies, because they are legally or formally contracted out, and the district does not have access to those except for a particular purpose.

820's are restricted fund balance. These are constricted or restrained for a particular purpose, generally set aside with another contractual agreement with an outside party.

830 are committed fund balances. Funds in these accounts are committed by the school board for particular purposes. Since the school board committed them, they can also un-commit them with the same kind of board action. So they are set aside, though, to preserve those funds for particular purposes. As an example, might be currently, districts will have a retirement subsidy fund in which they set aside monies to help them pay the rapidly increasing retirement cost for school districts, so that they have money that they can soften the future increases for them. They committed to that particular fund, and when it comes time to use it, they bring it out on that fund and use it for those purposes.

The next least restricted, or the 840's, which are called a signed fund balance. These are monies that are identified to be used for particular purposes. They are not committed, so it's not that level of restriction. But the district has indicated its intent to use it all for particular purposes.

And finally the 850's are the unassigned fund balance. There are just monies that the district has to be able to use. This is more of the contingency fund, where that they can use it when they are necessary.