Page 22 - ClearGov | Documents

Basis of Budg eting

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

Governmental Funds

All governmental funds, including the General Fund and Debt Ser vice 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 reser ved 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.

Proprietary Funds

The City ’s proprietary funds, including the Utility Fund and Drainage 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 depar tmental 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 Repor t (ACFR) is prepared in accordance with "generally accepted
accounting principles" (GA AP), which closely mirror the budget presentation, there are impor tant 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 GA AP.
Capital Expenditures: Capital purchases are budgeted as expenses in the year they are acquired. Under GA AP, 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.

FY 2025-2026 Annual Budget | Colleyville Page 22