Understand Deferred Outflows and Deferred Inflows in Governments (with Video)
GASB 63 and 65 provide guidance regarding deferred outflows and inflows in governments. This article provides an overview of those standards.
- Statement No. 63 – Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position
- Statement No. 65 – Items Previously Reported as Assets and Liabilities
This article will also aid you in differentiating deferred outflows and assets as well as deferred inflows and liabilities (such as unearned revenues).
What is the purpose of GASB 63 and 65?
GASB is using one of its conceptual statements (specifically Concepts Statement 4) to make revisions to reporting requirements (to include deferred outflows and deferred inflows).
Prior to GASBS 63 and 65, debit balances were reported on the statement of net position (balance sheet) as assets; similarly, all non-equity credits were reported as liabilities. These standards add deferred outflows and deferred inflows to the mix.
What are the main points of GASB 63?
This statement distinguishes assets from deferred outflows of resources and liabilities from deferred inflows of resources.
The five elements of the statement of net position are:
- Assets
- Deferred Outflows of Resources
- Liabilities
- Deferred Inflows of Resources
- Net Position
The three categories of net position are:
- Net Investment in Capital Assets
- Restricted
- Unrestricted
What is the difference in assets and deferred outflows?
Assets and Deferred Outflows
All debit balances in the statement of net position are reported as:
- Assets
- Deferred Outflows
Assets represent present service capacity (a resource that the government can use to provide services). Prepaid assets (such as prepaid rent), for example, is an asset since it has present service capacity; it can be used to provide a service.
Deferred outflows (e.g., prepaid bond insurance) represent the consumption of net position in future reporting periods. Deferred outflows have no present service capacity (they are not assets); they simply represent expenses that will be recognized in a future period.
What is the difference in liabilities and deferred inflows?
Liabilities and Deferred Inflows
All non-equity credits in the statement of net position are reported as:
- Liabilities
- Deferred Inflows
Liabilities normally represent a future surrender of resources; deferred inflows do not. A liability (e.g., unearned revenue) represents a obligation. Deferred inflows do not represent an obligation; they are simply revenues to be recognized in a future period (that is, they increase net position in a future period).
Here’s a video explaining the difference in unearned revenue and deferred inflows:
What are the main points of GASB 65?
- It identifies the specific items to be categorized as deferred inflows and deferred outflows.
- It clarifies the effect of deferred inflows and deferred outflows on the major fund determination.
- It limits the use of the term deferred in financial statements.
Examples of deferred inflows and deferred outflows
- The gain or loss from current or advance refundings of debt (the gain or loss will no longer be netted with the related debt but will be shown separately as a deferred outflow or a deferred inflow)
- Prepaid insurance related to the issuance of debt (which is a deferred outflow)
- Property taxes received or accrued prior to the period in which they will be used (which are deferred inflows)
- Property taxes that are not available for governments funds (the amounts not collected within 60 days of year-end which is titled Unavailable revenue – property taxes and is a deferred inflow)
Debt Issuance Cost
Debt issuance costs should be expensed when incurred. GASB concluded that debt issuance costs do not relate to future periods, and, therefore, should be expensed.
Cash Advances for Expenditure-Driven Grants
Cash advances from expenditure-driven grants should be recorded as unearned revenue (a liability). The key eligibility requirement for an expenditure-driven grant is the use of funds (which does not occur until funds are spent). Any grant funds received prior to meeting eligibility requirements will be shown as a liability. It is improper to use the word deferred for this line item; for example, deferred revenue is not appropriate. The more appropriate title is unearned revenue. Unearned revenue can appear at the fund level and the government-wide level and is reported as a liability (not deferred inflow) in both places.
Determination of Major Funds
Assets should be combined with deferred outflows of resources and liabilities should be combined with deferred inflows of resources for purposes of determining which elements meet the criteria for major fund determination.
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