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4. The Fund accounting system organizes the government into discrete categories, called
Funds, each of which is accounted for separately. The primary purpose of fund accounting is
to segregate the accounting for these activities so that they can be monitored. Fund
accounting is designed to provide the control mechanism necessary to ensure that cash is
spent as appropriated in the budget.
6. The GASB confirms the importance of a budget in its first Concept Statement: [A budget] is
a form of control usually having the force of law. A legally adopted budget provides both
authorizations of and limitations on amounts that may be spent for particular purposes.
Because budgetary authorizations result from competition for scarce resources and
budgetary limitations generally cannot be exceeded without due process, the governmental
entity needs to demonstrate that it is accountable from both the authorization and the
limitation perspectives [emphasis the GASB] (GASB CS 1, 19c).
7. An appropriation is a sum of money that has been set aside for a specific use.
8. The three types of funds are Governmental Funds, Proprietary Funds, and Fiduciary Funds.
Governmental Funds include the General Fund, Special Revenue Funds, Capital Projects
Funds, Debt Service Funds, and Permanent Funds. Proprietary Funds include Enterprise
Funds and Internal Service Funds. Fiduciary Funds include Pension and Other Employee
Benefit Funds, Investment Trust Funds, Private Purpose Trust Funds, and Agency Funds.
9. There is only one requirement relating to the establishment of funds: there should be only
one General Fund (GASB Codification 1300.116). Aside from that restriction, governmental units
should establish and maintain those funds that are required by law and necessary for sound
financial administration. Only the minimum number of funds consistent with legal and
operating requirements should be established, however, because unnecessary funds result
in inflexibility, undue complexity, and inefficient financial administration (NCGAS 1, 29).
The modified accrual basis of accounting refers to when the transaction is recognized.
Revenues are recognized in the accounting period in which they become susceptible to
accrual, that is, when they become both measurable and available to finance expenditures.
"Available" means collectible within the current period or soon enough thereafter to be
used to pay liabilities of the current period. Expenditures should be recognized in the
accounting period in which the fund liability is incurred, if measurable, except for
unmatured interest on general long-term debt and on special assessment indebtedness
secured by interest-bearing special assessment levies, which should be recognized when
due.
11. The property taxes due a government, net of estimated uncollectibles, typically can be
determined and recorded in the accounts when levied. Property taxes levied for the current
fiscal year are "available" and should be recognized as revenue, even though collectible in
the period subsequent to levy, if (1) their ultimate collectibility is reasonably assured, net of
reasonably estimated losses, and (2) they are collectible soon enough in the subsequent
period to finance current-period expenditures (NCGAS 1, 57). Collectible soon enough in the
subsequent period to finance current period expenditures is interpreted to mean 60 days
(NCGAI 3, 8). The 60-day rule implies that governments that expect receivables to be
collected after 60 days should defer the revenue until collected.
12. Local governments often receive aid from the state or federal government in the form of
grants and other subsidies. These grants often contain conditions such as the required
characteristics of recipients, time requirements, the use of funds only as a reimbursement,
and contingencies such as those related to a specified action of the recipient. Recipients
should recognize receivables (or a decrease in liabilities) and revenues (net of estimated
uncollectible amounts), when all applicable eligibility requirements, including time
requirements, are met. Resources transmitted before the eligibility requirements are met
should be reported as deferred revenues by recipients. (GASB Codification N50.117-.118)
14. The reason for this entry is so that government administrators can regularly monitor actual
vs. budget variances in order to make corrections as needed. This monitoring process is
critical since, unlike businesses, governments can only change revenues through the
legislative process and cannot move cash from one fund to another to make up for
shortfalls. Instead, managers must take elaborate steps to insure that expenditures not
exceed appropriations.
15. An encumbrance is a purchase order or other contractual commitment that requires the
payment of funds in the future relating to an existing appropriation. Accountability is the
cornerstone of financial reporting in government. Accountability requires governments to
answer to the citizenryto justify the raising of public resources and the purposes for
which they are used. The GASB summarized the meaning of accountability and its
applicability to financial reporting in the following statement in its Concepts Statement #1:
17. The remaining authority to issue further appropriations of approved expenditures is given
by the following formula:
At any time, therefore, government managers can assess their authority to issue additional
appropriations.
19. The reporting governments main operating fund (i.e., the general fund) should always be
reported as a major fund. Other funds are designated as major funds, and reported in
separate columns in the fund financial statements, if (GASB 34, 76),
20. The required financial statements for the three types of Funds are as follows:
Governmental funds
o Balance sheet
o Statement of revenues, expenditures, and changes in fund balances
Proprietary funds
o Statement of net assets
o Statement of revenues, expenses, and changes in fund net assets
o Statement of cash flows
Fiduciary funds (and component units that are fiduciary in nature)
o Statement of fiduciary net assets
o Statement of changes in fiduciary net assets
22. Answer: C
23. Answer: D
24. Answer: C
25. Answer: D
26. Answer: D
27. Answer: D
28. Answer: B
29. Answer: B
30. Answer: D
a. ENCUMBRANCES 47,000
BUDGETARY FUND BALANCE RESERVED
FOR ENCUMBRANCES 47,000
(to record issuance of purchase order for a truck)
c. Expenditures 51,000
Cash or Vouchers payable 51,000
(to reverse the previous encumbrance entry and record purchase of the
truck)
33. The journal entry to close the encumbrance account at year-end and to reestablish the
encumbrance in the succeeding year are as follows (assuming budgetary authority carries
over to the succeeding year):
(to reverse the budgetary encumbrance and reserve the fund balance for the
outstanding encumbrance)
d. ENCUMBRANCES 45,000
BUDGETARY FUND BALANCE 45,000
RESERVED FOR ENCUMBRANCES
35. The journal entry to record the sale of the truck is as follows:
Cash 25,000
Other financing sources 25,000
(to record the sale of the truck)
36. The journal entry to record the issuance of the bond is as follows:
Cash 5,000,000
Other financing sources proceeds from bond issue 5,000,000
(to record sale of a bond)
38. The journal entries to record the purchase and year-end adjustment are as follows
(purchases method):
Expenditures 4,000
Vouchers payable 4,000
(to record purchase of $4,000 of supplies inventory)
39. The journal entries to record the purchase and year-end adjustment are as follows
(consumption method):
Expenditures 4,000
Vouchers payable 4,000
(to record purchase of $4,000 of supplies inventory)
b. Cash 2,000
Receivables - real estate & personal property taxes 68,250
Receivables - intergovernmental revenues 12,285
Revenues - real estate & personal property taxes 68,250
Revenues - intergovernmental 12,285
Other financing sources - bond proceeds 2,000
(record revenues and other financing sources)
c. ENCUMBRANCES 76,508
BUDGETARY FUND BALANCE RESERVED FOR
ENCUMBRANCES 76,508
(to record the issuance of purchase invoices)
g. Revenues 975
Deferred revenues 975
(to defer revenues)
Closing Entries
h. 1. APPROPRIATIONS 77,273
BUDGETARY FUND BALANCE 3,651
ESTIMATED REVENUES 78,924
ESTIMATED OTHER FINANCING SOURCES 2,000
(to reverse budget entry)
Trial Balance:
DR CR
Cash $ 21,943
Receivables:
Real estate & personal property 1,800
Intergovernmental 18,614
Payables $ 2,130
Deferred revenues 20,475
Fund balances:
Assigned 5,400
Unassigned 10,100
Revenues - Real estate taxes 67,275
Intergovernmental revenues 12,285
Expenditures - General government 11,476
Expenditures - Public safety 7,651
Expenditures - Education 45,905
Expenditures - Public works 3,825
Expenditures - Human services 7,651
Expenditures - Debt principal payments 700
Expenditures - Debt interest payments 100
Other financing sources - proceeds from bonds 2,000
$119,665 $119,665
Balance Sheet:
Cash $21,943
Receivables:
Real estate & personal property 1,800
Intergovernmental 18,614
Total Assets $42,357
Payables $ 2,130
Deferred revenues 20,475
Total Liabilities 22,605
Fund Balances:
Assigned 5,400
Unassigned 14,352
Total fund balances 19,752
Total liabilities and fund balances $42,357
b. Cash 11,200
Receivables - real estate & personal property taxes 382,200
Receivables - intergovernmental revenues 68,796
Revenues - real estate & personal property taxes 382,200
Revenues - intergovernmental 68,796
Other financing sources - bond proceeds 11,200
(record revenues and other financing sources)
c. ENCUMBRANCES 428,446
BUDGETARY FUND BALANCE RESERVED FOR
ENCUMBRANCES 428,446
(to record the issuance of purchase invoices)
g. Revenues 5,460
Deferred revenues 5,460
(Deferral of revenues)
Closing Entries
h. 1. APPROPRIATIONS 432,731
BUDGETARY FUND BALANCE 20,445
ESTIMATED REVENUES 441,976
ESTIMATED OTHER FINANCING SOURCES 11,200
(to reverse budget entry)
Trial Balance:
DR CR
Cash $122,879
Receivables:
Real estate & personal property 10,080
Intergovernmental 104,240
Payables $11,929
Deferred revenues 114,660
Fund balances:
Assigned 30,240
Unassigned 56,560
Revenues - real estate taxes 376,740
Intergovernmental revenues 68,796
Expenditures - general government 64,266
Expenditures - public safety 42,845
Expenditures - education 257,068
Expenditures - public works 21,422
Expenditures - human services 42,845
Expenditures - debt principal payments 3,920
Expenditures - debt interest payments 560
Other financing sources - proceeds from bonds 11,200
$670,125 $670,125
Balance Sheet:
Cash $122,879
Receivables:
Real estate & personal property 10,080
Intergovernmental 104,240
Total assets $237,199
Payables $ 11,929
Deferred revenues 114,660
Total liabilities 126,589
Fund balances:
Assigned 30,240
Unassigned 80,370
Total Fund Balances 110,610
Total Liabilities and Fund Balances $237,199
b. Cash 30,600
Receivables - real estate & personal property taxes 1,044,225
Receivables - intergovernmental revenues 187,961
Revenues - real estate & personal property taxes 1,044,225
Revenues - intergovernmental 187,961
Other financing sources - bond proceeds 30,600
(record revenues and other financing sources)
c. ENCUMBRANCES 1,170,576
BUDGETARY FUND BALANCE RESERVED FOR
ENCUMBRANCES 1,170,576
(to record the issuance of purchase invoices)
g. Revenues 14,918
Deferred revenues 14,918
(Deferral of revenues)
Closing Entries
h. 1. APPROPRIATIONS 1,182,282
BUDGETARY FUND BALANCE 55,860
ESTIMATED REVENUES 1,207,542
ESTIMATED OTHER FINANCING SOURCES 30,600
(to reverse budget entry)
Trial Balance:
DR CR
Cash $335,722
Receivables:
Real estate & personal property 27,540
Intergovernmental 284,799
Payables: $32,591
Deferred revenues 313,268
Fund balances:
Assigned 82,620
Unassigned 154,530
Revenues - real estate taxes 1,029,307
Intergovernmental revenues 187,961
Expenditures - general government 175,585
Expenditures - public safety 117,058
Expenditures - education 702,346
Expenditures - public works 58,529
Expenditures - human services 117,058
Expenditures - debt principal payments 10,710
Expenditures - debt interest payments 1,530
Other financing sources - proceeds from bonds 30,600
$1,830,877 $1,830,877
Balance Sheet:
Cash $335,722
Receivables:
Real estate & personal property 27,540
Intergovernmental 284,799
Total Assets $648,061
Payables: $ 32,591
Deferred revenues 313,268
Total Liabilities 345,859
Fund Balances:
Assigned 82,620
Unassigned 219,582
Total Fund Balances 302,202
Total Liabilities and Fund Balances $648,061
b. Cash 5,400
Receivables - real estate & personal property taxes 184,275
Receivables - intergovernmental revenues 33,170
Revenues - Real Estate & personal Property Taxes 184,275
Revenues - intergovernmental 33,170
Other financing sources - bond proceeds 5,400
(to record revenues and other financing sources)
c. ENCUMBRANCES 206,572
BUDGETARY FUND BALANCE RESERVED FOR
ENCUMBRANCES 206,572
(to record the issuance of purchase invoices)
g. Revenues 2,633
Deferred revenues 2,633
(Deferral of revenues)
Closing Entries
h. 1. APPROPRIATIONS 208,638
BUDGETARY FUND BALANCE 9,858
ESTIMATED REVENUES 213,096
ESTIMATED OTHER FINANCING SOURCES 5,400
(to reverse budget entry)
Trial Balance:
DR CR
Cash $59,245
Receivables:
Real estate & personal property 4,860
Intergovernmental 50,259
Payables: $5,751
Deferred revenues 55,283
Fund balances:
Assigned 14,580
Unassigned 27,270
Revenues - real estate taxes 181,642
Intergovernmental revenues 33,170
Expenditures - general government 30,986
Expenditures - public safety 20,657
Expenditures - education 123,943
Expenditures - public works 10,329
Expenditures - human services 20,657
Expenditures - debt principal payments 1,890
Expenditures - debt interest payments 270
Other Financing Sources - Proceeds from Bonds 5,400
$323,096 $323,096
Balance Sheet:
Cash $ 59,245
Receivables:
Real estate & personal property 4,860
Intergovernmental 50,259
Total Assets $114,364
Payables $ 5,751
Deferred revenues 55,283
Total Liabilities 61,034
Fund Balances:
Assigned 14,580
Unassigned 38,750
Total Fund Balances 53,330
Total Liabilities and Fund Balances $114,364