STATEMENT I

COMMONWEALTH OF KENTUCKY

STATEMENT OF FINANCIAL CONDITION AS OF THE BEGINNING AND THE CLOSE OF THE FISCAL YEAR JULY 1, 1922 TO JUNE 30, 1923

Discussion of Statement I-Financial Condition:

The preceding statement shows that the condition of the treasury as a whole improved greatly during the year ended June 30, 1923. This was due, of course, to a large excess of revenue over expenditure, which in part at least, was due to a mistake in estimating revenues. From the Auditor's books

at hand as to what revenues are and will be available et them. To prevent deficits it is necessary to have the reliable financial statements giving the financial condif the State and the revenues and expenditures, past and sted, in total and in detail.

using Statement I the following facts must be kept in

w8I 4, 44 8 2,,。

The statement does not show amounts of cash in the s of departments and institutions having separate treas

Accruals of receipts and of fixed charges are not taken account.

Liabilities incurred but not represented by warrants d are not recorded and cannot be estimated at this time.

and from a comparison of the two treasury deficit figures given above, it is indicated that this excess amounted to $2,691,931.54. Using the more complete figures for revenue and expenditure, the amount of the excess would be placed at $2,789,220.78.

The treasury deficits ($3,935,994.95 at the beginning of the year and $1,244,063.41 at the end) are the significant figures to show the financial condition of the State as a whole (excluding department and institution debt and balances for which no information is available) since there is no real recorded debt of the State except the interest-bearing warrants which are taken into account. Plant and equipment assets are properly omitted in showing the condition of a government. Since there is no bonded indebtedness, the treasury deficit may be called the "Net Debt" of the State, a term which is convenient to use for a debit balance on a government balance sheet, (corresponding to the ordinary balance sheet item "Deficit").

The additional figures on the lower half of the statement indicate the effect of the special funds in increasing the requirements for cash. So long as the special fund system of financing continues and is combined with the interest-bearing warrant method of borrowing, the deficiency of cash, as shown at the bottom of the statement, must be met by borrowing, unless the legal rights of certain departments, as conferred by the special funds legislation, are to be ignored. The indicated large amount of outstanding warrants, with resulting heavy interest charges, is, therefore, in part accounted for by the defective legal provisions. Both the special funds and borrowing by issuing interest-bearing warrants are undesirable.

These and other matters affecting the economical handling of cash are dealt with in a chapter on "Treasury Administration."

It is hardly necessary to state that the present deficit in the General Fund results from a failure to "balance the budget." Appropriations are made without sufficient data

being at hand as to what revenues are and will be available to meet them. To prevent deficits it is necessary to have the use of reliable financial statements giving the financial condition of the State and the revenues and expenditures, past and estimated, in total and in detail.

In using Statement I the following facts must be kept in mind:

1. The statement does not show amounts of cash in the hands of departments and institutions having separate treasuries.

2. Accruals of receipts and of fixed charges are not taken into account.

3. Liabilities incurred but not represented by warrants issued are not recorded and cannot be estimated at this time.