Page 23 - CityofColleyvilleFY25AdoptedBudget

Basis of Budgeting
The basis of accounting refers to the timing of when revenues, expenditures, or expenses are recognized and reported in
the nancial statements. The City of Colleyville’s budgeting practices align closely with its accounting methods, ensuring
consistency and transparency across nancial reports. However, there are distinctions between how certain transactions
are recorded for budgeting versus accounting purposes.

Governmental Funds

All governmental funds, including the General Fund and Debt Service Fund, are budgeted and accounted for using the
modi ed accrual basis. Under the modi ed accrual basis, revenues are recognized when they become both measurable
and available as current nancial resources. For instance, sales taxes are considered measurable when they are in the
hands of the State Comptroller and are recognized as revenue at that point. Other major revenue sources, such as utility
franchise taxes, intergovernmental revenues, and interest, are also subject to accrual under this method.

Expenditures in governmental funds are recognized when the related liability is incurred. However, for budgeting
purposes, encumbrances are recorded when contracts are awarded, ensuring that funds are reserved for future
obligations. Capital expenditures in governmental funds are recorded as expenditures in the budget and as assets in the
general xed assets group in the nancial statements. In the entity-wide nancial statements required by GASB 34, these
capital assets are depreciated over their useful lives.

Proprietar y Funds

The City’s proprietary funds, including the Utility Fund and Drainage Utility Fund, are budgeted on a full accrual basis.
Revenues are recognized when they are earned, and expenses are recognized when they are incurred. In these funds,
capital expenditures are recorded as assets on the balance sheet and depreciated over their useful lives. For budgeting
purposes, both nominal capital items (those under $25,000) and larger capital projects are included in the operating and
capital budgets, respectively. Depreciation is also budgeted as it re ects the ongoing cost of using capital assets.

A key aspect of budgeting for proprietary funds is the inclusion of both capital purchases and depreciation, which
provides management with the tools necessary to monitor and control departmental expenditures effectively. This
hybrid approach combines elements of both full accrual and modi ed accrual methods, allowing for a comprehensive
view of the nancial position of these funds.

Differences Between the Basis of Accounting and Basis of Budgeting

While the City’s Annual Comprehensive Financial Report (ACFR) is prepared in accordance with "generally accepted
accounting principles" (GAAP), which closely mirror the budget presentation, there are important differences to note:

Debt Principal Repayments: In the budget, principal repayments of debt are treated as expenses. However, in the
ACFR, these payments are classi ed as reductions of a liability, as required by GAAP.
Capital Expenditures: Capital purchases are budgeted as expenses in the year they are acquired. Under GAAP, these
expenditures are recorded as assets and depreciated over their useful lives in the nancial statements.
Depreciation: While depreciation is recorded annually in the ACFR to re ect the wear and tear on capital assets, it is
not included as an expense in the budget. Instead, the budget re ects the initial capital expenditure.

City of Colleyville | Budget Book 2025 Page 23