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General Fund Calculations & Journal
Entries

Calculating Property Taxes:                      

  Estimated expenditures
and other financing uses:

       Salaries                              
$680,000

       Supplies                                 
95,000

       Miscellaneous                          
5,000

       Transfers out                        
150,000

           
Total resource outflows          
$930,000

  Estimated revenues other than property taxes:

       Licenses and permits          
$110,000

       State grant                              
50,000

       Miscellaneous                        
10,000

           
Total                                
170,000

 

  Amount required from property tax for 

    a balanced budget                  
$760,000

To generate exactly
$760,000 it is necessary to calculate (1) the tax rate, given the current
assessed value and (2) the total tax levy.  Both the net assessed
value of property and tax collection history are needed for these calculations.

Total assessed value is $130,000,000.  However, much of the property
is exempt from the city property tax, including government-owned property,
property owned by churches and other nonprofit organizations, and property
exemptions of 10% given to the elderly. Exemptions total $15,000,000. 
The net assessed value (which is subject to property taxation) is $115,000,000.

Estimates of current year collections are based
on past collection rates.  On average, 95% of the current year's
levy is collected in the year of the tax levy; 4% is collected the following
year, and the remaining 1% will remain uncollectible and will eventually
have to be written off. 

On the books, there are delinquent taxes of $41,700.  It is estimated
that $30,000 of these delinquencies will be collected this year.

     To calculate the tax rate the following equation
is used:

  Tax rate = Property tax requirement - delinquent collections

                     
current collection rate x net assessed value

[The numerator is the
total revenues from the current tax levy.]  The tax rate is usually
stated per $100 of assessed value, which can be achieved by multiplying
the equation by 100 (or dividing NAV by 100).  The calculation
for the City is:

  Tax rate =  760,000 - 30,000   =  
$.66819 per $100 NAV

           
95% x (115,000,000/100)

The total tax levy is
the tax rate times the net assessed value:

Total tax levy = $.66819 x (115,000,000/100) = $768,421.

This is equivalent to:

  x = total tax levy: .95x = (760,000 - 30,000); x = $768,421;

  tax rate = (768,421/115,000,000) x 100=$.66818 per $100 NAV.

Journal Entries:

1.  Estimated Revenues            
930,000

          Appropriations                                  
780,000

          Estimated Other
Financing Uses       150,000

    
The property tax levy also is recorded on the first day of the fiscal
year.

  2.  Taxes Receivable [Current]     
768,421

          Revenues - Property
Taxes           
730,000

          Deferred Revenues                          
30,737

          Allowance for
Uncollectible Taxes   7,684

    
The estimated collections from the previous year's levy are recorded.

  3.  Deferred Revenues Property Tax 30,000

          Revenues - Property
Taxes                    
30,000

    
During the year taxes are collected in cash.  Cash transactions
occur almost every day.  The totals for the year are summarized
as:  $731,000 from the current levy; $29,500 in delinquent taxes.

   4.  Cash                          
760,500

          Taxes Receivable
[Current]               
731,000

          Taxes Receivable-Delinquent           
29,500

         

Other revenue collections (amounts receivable could not be estimated);

  5.  Cash                       
151,000

          Revenues-Licenses
& Permits      121,000

          Revenues-Intergovernmental         
30,000

    
At year-end current taxes receivable become delinquent.

  6.  Taxes Receivable-Delinquent         
37,421

          Taxes Receivable-Current               
37,421

Taxes Receivable-Current
is eliminated (moved to a delinquent category): the current levy of
$768,421 less current collections of $731,000.

Closing entries (partial)

7.  Appropriations                        
780,000

           Estimated
Other Financing Uses        
150,000

           Estimated
Revenues                           
930,000

       Revenues-Property Taxes               
760,000

       Revenues-Licenses & Permits        
121,000

       Revenues-Intergovernmental            
30,000

                          
Fund Balance                            
911,000

 

Example:    Property tax. Oak City has the following General
Fund information:

      Projected spending                           $870,000

      Revenue forecast - excluding property
tax      130,000

      Net Assessed Value (NAV)                 $150,000,000

      % expected to be collected this year              91%

      % expected to be collected next year               5%

         (delinquent taxes)

      % uncollectible                                                     4%

      Delinquent collections  expected
to be collected    $30,000

1.  Calculate the property tax rate to achieve a balanced budget
(to 4 decimal places).

2.  Record the tax levy journal entry.

3.  The estimated collection of delinquent tax is accrued. 
Record the journal entry.