AGA Today

Federal Accounting Corner

Governmental-Type Versus Business-Type Collections

The U.S. Standard General Ledger (SGL) and the financial statements are based, in part, on economic principles. One of those principles is that governments act both in ways that are similar to any other large economic entity and in ways that are unique to governments.

Like any large economic entity, the federal government buys and provides goods and services. Unlike businesses, the government has sovereign authority that allows it to coerce a transaction. When a government agency receives income in exchange for goods or services it provides, that income is considered to be exchange revenue (see FASAB Statement 7, Appendix C). Nonexchange revenues include taxes and penalties. The Statement of Net Cost includes only exchange revenues, while nonexchange revenues are reported on the Statement of Changes in Net Position.

This distinction is also reflected in the financial resources section of the SGL. The FACTS I definition lists revenue from goods sold (5100) and services provided (5200), interest from subsidy amortization (5313), insurance and guarantee premiums (5500) and their respective contra-accounts as exclusively exchange revenues. It also lists donations (5600 series) and taxes (5800 series) as strictly nonexchange. The revenues that can be either exchange or nonexchange are interest and penalties (5310 through 5329 excluding 5313), benefit program revenue (5400 series) and other revenue (5900 series). Accounts in the 5700 series such as 5700 Expended Appropriations and 5780 Imputed Financing Sources are not revenue at all—they are referred to solely as financing sources (and only appear on the Statement of Changes in Net Position).

Since FY02 the budgetary collection accounts have reflected this distinction as well. Account 4261 Actual Collections of Fees was divided into 4260 for "governmental-type" [quotes are theirs] and 4261 for business-type. Account 4266 for other actual collections was similarly divided into 4266 for business-type and 4267 for governmental-type.

What are "governmental-type" collections? The SGL definition of governmental-type revenues are those resulting from an exercise of sovereign powers, which means they are nonexchange. In these transactions, an agency collects a fee but does not provide value in return. Another way of looking at it is if an agency can coerce the collection, it is governmental type, whereas if the other party only pays the fee willingly (in exchange for value), it is business type. There is no Exchange/Nonexchange flag for the budgetary accounts reported in FACTS II (as there is for the revenue accounts in FACTS I), which may be the reason for splitting these accounts up.

Curiously, not all transactions listed by the SGL Board in the Treasury Financial Manual are consistent with this usage. A notable example is entry C158 for donations, which uses a nonexchange revenue account (5600) but the business type budgetary account (4266). Since donations are, by definition, nonexchange, I assume the board meant to use 4267.

Transaction C182 also uses 4266 for collections of reimbursable advances (recorded on the proprietary side in account 2310 Advances from Others). I do not feel that is appropriate; instead, agencies should only use the alternate account shown on these transactions—4222 Unfilled Customer Orders With Advance. The reason I feel that 4222 is the only correct account is that both 2310 and 4222 are permanent accounts, while 4266 closes at year end. If an agency records an advance in 4266 in one year, and the advance is not applied (using entry A710) or returned until the next year, the application or return will cause an unnatural credit balance in 4266. On the other hand, if 4222 is used, the debit balance will remain in 4222 after annual close, so the credit activity recorded in the next year will simply reduce the 4222 balance. —Simcha Kuritzky, CGFM, CPA        

This column is provided as part of a free exchange of ideas in federal accounting, and is not reviewed substantively before publication. Please send all comments, queries, or corrections to Simcha.Kuritzky@CGIFederal.com