chap4

Chapter 03Governmental Operating Statement Accounts; Budgetary Accounting

True / False Questions1.Fund-based financial statements are intended to provide detailed financial information about the governmental, business-type, and fiduciary activities of the primary government. TrueFalse

2.Program revenues are distinguished from general revenues on the government-wide statement of activities under GASB standards. TrueFalse

3.Aggregate financial information for all special revenue funds is reported in a single separate column of the governmental funds statement of revenues, expenditures, and changes in fund balances. TrueFalse

4.Government-wide financial statements include financial information presented for the General Fund and major governmental funds. TrueFalse

5.Interfund transfers and debt issue proceeds received by a governmental fundshould be recorded as other financing sources. TrueFalse

6.Depreciation expense for assets that essentially benefit all functions, such as the city hall, may be reported as a separate line item or on the same line as the General Government or similar function. TrueFalse

7.All purchases of goods and services and all interfund transfers of the General Fund are recorded as Expenditures. TrueFalse

8.All decreases in fund financial resources, other than for repayment of fund liabilities, are termed "expenditures." TrueFalse

9.Other financing sources increase fund balance in the same manner as revenues.TrueFalse

10.Budgetary accounts used in the General Fund include Estimated Revenues, Estimated Other Financing Sources, Appropriations, Estimated Other Financing Uses, and Encumbrances. TrueFalse

11.All encumbrances must be closed at year-end.TrueFalse

12.An encumbrance represents the estimated future liability for goods or services resulting from placing a purchase order or signing a contract. TrueFalse

13.GASB standards require that all state and local governments present a statement of revenues, expenditures, and changes in fund balancesbudget and actual for the General Fund, and major special revenue funds for which annual budgets have been legally adopted.TrueFalse

14.Available means that a revenue or other financing source is expected to be collected during the current fiscal period or within one month of the fiscal year end.TrueFalse

15.Revenues and expenditures reported in the budgetary comparison schedule must be reported on the budget basis in the "budget" column and on the GAAP basis in the "actual" column.TrueFalse

16."Available appropriation" is calculated as the difference between appropriations and the sum of expenditures and encumbrances.TrueFalse

17.Financial information for governmental funds must be reported on the economic resources measurement focus.TrueFalse

18.An allotment may be described as an internal allocation of funds on a periodic basis usually agreed upon by the department heads and the chief executive. TrueFalse

Multiple Choice Questions19.Which of the following best describes the recommended format for the government-wide statement of activities?

A.Program revenues minus expenses minus other revenues and expenses equals change in net position.

B.Program revenues plus general revenues minus expenses equals change in net position.

C.Program revenues minus expenses plus general revenues equals change in net position.

D.Expenses minus program revenues plus general revenues equals change in net position.

20.Which of the following statements is not a true statement about expenses that are directly related to a government function or program?

A.They are reported in the government-wide statement of activities at the government-wide level.

B.They include expenses that are specifically associated with a function or program.

C.They include interest on general long-term liabilities.

D.They include depreciation expense on capital assets that are clearly identified with a function or program.

21.Which of the following are reported in the functions/programs section of the statement of activities at the government-wide level where they reduce the net expense of each function or program or produce a net revenue?

A.General revenues.

B.Program revenues.

C.Indirect revenues.

D.Extraordinary items.

22.Extraordinary items and special items are reported

A.With normal recurring general revenues.

B.As separate line items in the Function/Programs section of the statement of activities.

C.As separate line items below General Revenues in the statement of activities.

D.As separate line items above General Revenues.

23.Which of the following items would not appear in a statement of revenues, expenditures, and changes in fund balances prepared for a governmental fund?

A.Depreciation expense.

B.Interfund transfers in.

C.Revenues from property taxes.

D.Expenditures for employee salaries.

24.Which of the following would be classified as a general revenue?

A.Parking meter fees.

B.Special assessment charges for snow removal.

C.Library fines.

D.Fuel taxes earmarked for maintenance of roads and bridges.

25.Which of the following is not a budgetary account?

A.Encumbrances.

B.Encumbrances Outstanding.

C.Estimated Revenues.

D.Appropriations.

26.When the budget for the General Fund is recorded, the required journal entry will include

A.A credit to Estimated Revenues.

B.A debit to Encumbrances.

C.A credit to Appropriations.

D.A credit to Fund Balance.

27.When the budget of a government is recorded and Appropriations exceeds Estimated Revenues, the Budgetary Fund Balance account is

A.Credited at the beginning of the year and debited at the end of the year.

B.Credited at the beginning of the year and no entry is made at the end of the year.

C.Debited at the beginning of the year and no entry is made at the end of the year.

D.Debited at the beginning of the year and credited at the end of the year.

28.Which of the following accounts is a budgetary account of a governmental fund?

A.Encumbrances Outstanding.

B.Estimated Other Financing Uses.

C.Expenditures.

D.Other Financing Sources.

29.The Estimated Revenues control account of a government is credited when

A.The budgetary accounts are closed: Yes; Revenues are recorded: No

B.The budgetary accounts are closed: No; Revenues are recorded: No

C.The budgetary accounts are closed: No; Revenues are recorded: Yes

D.The budgetary accounts are closed: Yes; Revenues are recorded: Yes

30.Under the modified accrual basis of accounting used by the General Fund, financial resources are considered available if they will be received in the current period or within

A.60 days after year-end.

B.90 days after year-end.

C.One year.

D.The time after year-end defined by each individual government.

31.Which of the following accounts of a government is credited when a purchase order is approved?

A.Encumbrances.


C.Vouchers Payable.

D.Appropriations.

32.The Expenditures control account of a government is debited when

A.The budget is recorded.

B.Supplies are ordered.

C.Supplies previously encumbered are received.

D.The invoice is paid.

33.Which of the following is true regarding other financing sources and other financing uses?

A.Both must be reported separately from revenues and expenditures in the statement of revenues, expenditures, and changes in fund balances.

B.These terms are used to distinguish program revenues or expenses from general revenues or expenses.

C.These terms are used for minor revenue or expenditure items that are peripheral to the government's mission.

D.Other financing sources are equivalent to gains and other financing uses are equivalent to losses.

34.Under which basis of accounting for a government should revenues be recognized in the period when they are measurable and available?

A.Accrual basis: No; Modified accrual basis: No

B.Accrual basis: Yes; Modified accrual basis: No

C.Accrual basis: Yes; Modified accrual basis: Yes

D.Accrual basis: No; Modified accrual basis: Yes

35.The expenditure classification "Public Safety" is an example of which of the following types of classifications?

A.Activity.

B.Function.

C.Character.

D.Object.

36.When supplies ordered for use in an activity accounted for in the General Fund are received at an actual price that is more than the estimated price on the purchase order, the Encumbrance account is

A.Debited for the estimated price on the purchase order.

B.Credited for the estimated price on the purchase order.

C.Debited for the actual price for the supplies received.

D.Credited for the actual price for the supplies received.

37.A statement of revenues, expenditures, and changes in fund balancesbudget and actual is

A.Required by GAAP for the General Fund, special revenue funds, and all other governmental fund types for which an annual budget has been adopted.

B.Required by GAAP for internal management reports only; not permitted for external financial reporting.

C.Required by GAAP for all governmental fund types.

D.Optional under GAAP, as long as a budgetary comparison schedule is presented.

38.The account "Interfund Transfers In" would be classified in a General Fund statement of revenues, expenditures, and changes in fund balance as a(an)

A.Revenue.

B.Other financing use.

C.Other financing source.

D.Current liability.

39.The expenditure classification "City Attorney" is an example of which of the following types of classification?

A.Function.

B.Organization unit.

C.Character.

D.Program.

40.When the budget of a government is adopted and Estimated Revenues exceed Appropriations, the excess is

A.Credited to Budgetary Fund Balance.

B.Debited to Budgetary Fund Balance.

C.Debited to Encumbrances Outstanding.

D.Credited to Encumbrances Outstanding.

41.Which of the following steps in the acquisition of goods and services by an activity accounted for by the General Fund generally occurs first?

A.Disbursement.

B.Appropriation.

C.Encumbrance.

D.Expenditure.

42.When equipment that is to be used by an activity accounted for by the General Fund of a government is received, it should be recorded in the General Fund as a(an)

A.Capital Asset.

B.Appropriation.

C.Encumbrances.

D.Expenditure.

43.The journal entry to record budgeted revenues will include

A.A debit to Estimated Revenues.

B.A credit to Estimated Revenues.

C.A debit to Revenues Receivable.

D.Only a memorandum entry is necessary.

44.The County Commission of Benton County adopted its General Fund budget for the year ending June 30, comprising estimated revenues of $3,200,000 and appropriations of $2,900,000. Benton County utilizes the budgetary accounts required by GASB standards. The journal entry to record budgeted appropriations will include

A.A credit to Appropriations, $2,900,000.

B.A credit to Encumbrances, $2,900,000.

C.A debit to Estimated Expenditures, $2,900,000.

D.A credit to Budgetary Fund Balance, $2,900,000.

45.The County Commission of Benton County adopted its General Fund budget for the year ending June 30, comprising estimated revenues of $3,200,000 and appropriations of $2,900,000. Benton County utilizes the budgetary accounts required by GASB standards. The budgeted excess of estimated revenues over appropriations will be recorded as

A.A credit to Surplus Revenues, $300,000.

B.A debit to Estimated Excess Revenues, $300,000.

C.A credit to Budgetary Fund Balance, $300,000.

D.A memorandum entry only.




C.A debit to Appropriations.

D.Either a debit or credit to Budgetary Fund Balance, as appropriate.

47.Fund balance may be classified as all of the following except

A.Restricted.

B.Committed.

C.Uncommitted.

D.Assigned.

48.Which of the following neither increases nor decreases fund balance of the General Fund during the current period?

A.Deferred revenues.

B.Revenues.

C.Expenditures.

D.Other financing sources.

49.The expenditure classification "Current Expenditures" is an example of which of the following types of classifications?

A.Activity.

B.Character.

C.Function.

D.Object.

50.Comparisons of budgeted versus actual revenues and expenditures are

A.Required by GAAP for the General Fund and major special revenue funds for which an annual budget has been legally adopted.

B.Required by GAAP for all governmental fund types.

C.Required by generally accepted accounting principles (GAAP) for internal management reports only; not permitted for external financial reporting.

D.Optional under GASB standards for all funds.

51.Which of the following statements is true regarding the required disclosure of budgetary information?

A.All budgetary disclosures should be presented in the notes to the financial statements.

B.There is one specific format for presenting the budgetary comparison statement.

C.Budgetary comparisons are required supplementary information (RSI).

D.The budgetary reconciliation must focus on the operating statement, but not the statement of position.

52.The Encumbrances control account of a city is decreased when

A.Goods are ordered: No; Goods are received: No

B.Goods are ordered: Yes; Goods are received: No

C.Goods are ordered: Yes; Goods are received: Yes

D.Goods are ordered: No; Goods are received: Yes

53.Under the modified accrual basis of accounting, expenditures generally are not recognized until

A.They are paid in cash.

B.An obligation is incurred that will be paid from currently available financial resources.

C.Goods or services are ordered.

D.They are approved by the legislative body.

54.Which of the following fund types uses the current financial resources measurement focus and modified accrual basis of accounting?

A.Enterprise fund.

B.Special revenue fund.

C.Investment trust fund.

D.Pension trust fund.

55.Which of the following will increase the fund balance of a government at the end of the fiscal year?

A.The sum of revenues and other financing sources is more than the sum of expenditures and other financing uses.

B.Expenditures are more than the difference between revenues and the excess of other financing sources over other financing uses.

C.Revenues are more than the sum of expenditures, other financing sources, and other financing uses.

D.The sum of fund balance, revenues, and other financing sources is more than the sum of expenditures and other financing uses.

56.Which of the following fund types is most likely to have a legally adopted annual budget?

A.Permanent fund.

B.General Fund.

C.Pension trust fund.

D.Capital projects fund.

57.A liability is recorded in governmental funds when:

A.Goods or services are ordered.

B.Goods or services are received and the invoice is vouchered.

C.Invoices are paid.

D.The appropriation is reduced.

58.Which of the following terms refers to an actual cost rather than an estimate?

A.Budget.

B.Encumbrance.

C.Expenditure.

D.Appropriation.

59.For what funds do budgetary comparisons need to be presented in connection with the basic financial statements?

A.General Fund.

B.General Fund and all major funds.

C.All governmental funds with legally adopted annual budgets.

D.General Fund and major special revenue funds for which a budget is legally adopted.

60.When computers are ordered by the mayor's office, the purchase order should be recorded in the General Fund as a debit to:

A.Encumbrances.

B.Equipment.

C.Expenditures.

D.Appropriations.

61.If supplies that were ordered by a department financed by the General Fund are received at an actual price that is less than the estimated price on the purchase order, the departments available balance of appropriations for supplies will be

A.Decreased.

B.Increased.

C.Unaffected.

D.Either a or b, depending on the departments specific budgetary control procedures.

62.The Appropriations account of a governmental fund is credited when

A.The budgetary accounts are closed.

B.The budget is recorded.

C.Supplies are purchased.

D.Expenditures are recorded.

63.If a state law requires that local governments prepare General Fund and special revenue fund budgets on a basis that differs from the basis of accounting required by generally accepted accounting principles (GAAP)

A.The actual amounts in the budgetary comparison schedule should be reported using the government's budgetary basis.

B.The actual amounts in the budgetary comparison schedule should be reported on the GAAP basis.

C.Both the budgeted and actual amounts in the budgetary comparison schedule prepared as part of the required supplementary information (RSI) should be reported on the GAAP basis; a separate budget-basis comparison schedule should be prepared for the appropriate state oversight body.

D.Only a budgetary comparison schedule prepared for the appropriate state oversight body is required.

64.The Expenditures control account of a government is credited when:

A.Supplies are ordered.

B.Supplies previously encumbered are received.

C.The budget is recorded.

D.Temporary accounts are closed out at the end of the year.

Short Answer Questions65.GASB standards suggest the following classification scheme for expenditures: A. Function B. Program C. Organization unit D. Activity E. Character F. Object

For each of the following expenditure items, indicate its correct classification by placing the appropriate letter in the blank space next to the item.

____ 1.Solid waste collectionresidential____ 2.City clerk ____ 3.Supplies ____ 4.Transportation ____ 5.Health and welfare

66.The revenue classifications recommended by GASB standards are listed below:A. TaxesB. Licenses and permitsC. Intergovernmental revenueD. Charges for servicesE. Fines and forfeitsF. Miscellaneous

For each revenue source listed below indicate its correct classification by placing the appropriate letter in the blank space next to the item.

____ 1. Capital grant received by a city from a state____ 2. Property tax levied by city____ 3. Library use fees____ 4. Occupational licenses____ 5. Loitering fine

67.The Charleston city council approved and adopted its budget for FY 2014. The budget for the General Fund contained the following amounts:

When the General Fund budget for FY 2014 is recorded, indicate whether each of the following accounts should be debited (D), credited (C), or is not affected (N).

_____ 1.Estimated revenues _____ 2.Budgetary Fund balance _____ 3.Appropriations _____ 4.Estimated other financing uses _____ 5.Expenditures

68.The City of Charleston recorded its FY 2014 property tax levy in the general fund. It was estimated that $6,000 would be uncollectible. When the tax levy is recorded, indicate whether each of the following accounts of the General Fund should be debited (D), credited (C), or is not affected (N).

_____ 1.Taxes Receivable Current _____ 2.Bad Debt Expense _____ 3.Estimated Uncollectible Current Taxes _____ 4.Revenues _____ 5.Estimated revenues

69.When encumbrances are recognized at the time purchase orders are issued, indicate whether each of the following accounts of the General Fund should be debited (D), credited (C), or is not affected (N).

_____ 1.Encumbrances _____ 2.Encumbrances Outstanding _____ 3.Expenditures _____ 4.Vouchers payable _____ 5.Purchases

70.An interfund transfer of $30,000 was made from the General Fund to the debt service fund. (No previous entries were made regarding this transaction). When this event occurred, indicate whether each of the following accounts of the General Fund should be debited (D), credited (C), or is not affected (N).

_____ 1.Interfund Loan to Debt Service FundNoncurrent._____ 2.Due from Debt Service Fund._____ 3.Cash._____ 4.Other Financing UsesInterfund Transfers Out._____ 5.Encumbrances.

Essay Questions71.Define the term revenue and distinguish between that term and other financing sources.

72.Distinguish between the Encumbrances account and the Encumbrances Outstanding account.

73.Explain why governmental fund financial statements are insufficient for users seeking information about operational accountability.

74.What benefits do financial statement users derive from the net (expense) revenue format used for the government-wide statement of activities?

75.Why is depreciation expense typically reported as a direct expense in the government-wide statement of activities?

76.The Board of Aldermen of Fitchburg approved the appropriations budget for its General Fund for the year ending December 31, as shown below.

1) Explain the legal significance of an appropriation and why auditors engaged for a financial and compliance audit need to know the meaning of the term.2) It is illegal for a government to spend money for any purpose unless a valid appropriation for that purpose exists. Does this legal rule assure good financial management for each government? Why or why not?

Chapter 03 Governmental Operating Statement Accounts; Budgetary Accounting Answer Key

True / False Questions1.Fund-based financial statements are intended to provide detailed financial information about the governmental, business-type, and fiduciary activities of the primary government. TRUEGovernment-wide financial statements provide detail of governmental activities and business-type activities; while fund-based financial statements are intended to provide detailed financial information about the governmental, business-type, and fiduciary activities of the primary government.

Difficulty: MediumQuestion Type: Concept

2.Program revenues are distinguished from general revenues on the government-wide statement of activities under GASB standards. TRUEProgram revenues appear on the top half of the statement of activities and are subtracted from expenses of each function or program in arriving at the net cost of operations for governmental services. General revenues, on the other hand, appear on the lower half of the statement of activities and are in one column as a subtraction from the net cost of government services in arriving at the change in net position for the fiscal year.


3.Aggregate financial information for all special revenue funds is reported in a single separate column of the governmental funds statement of revenues, expenditures, and changes in fund balances. FALSEAs shown in Illustration 3-2, only those special revenue funds that are designated as major funds, or meet the GASB criteria for classification of major funds, are reported in separate columns of the basic fund statements. Financial information for all nonmajor governmental funds is reported in the aggregate in the "Other Governmental Funds" column.


4.Government-wide financial statements include financial information presented for the General Fund and major governmental funds. FALSEGovernment-wide financial statements report on the governmental and business-type activities of the government as a whole, and not on the funds. Governmental-type, proprietary-type, and fiduciary-type funds are reported in the funds financial statements.

Difficulty: EasyQuestion Type: Concept

5.Interfund transfers and debt issue proceeds received by a governmental fundshould be recorded as other financing sources. TRUEGASB standards specifically classify these items as other financing sources. Revenue is simply defined as increases in a fund's financial resources other than from interfund transfers and debt proceeds.


6.Depreciation expense for assets that essentially benefit all functions, such as the city hall, may be reported as a separate line item or on the same line as the General Government or similar function. TRUEDepreciation expense for shared assets should be allocated to functions on an appropriate basis (for example, square footage of building use); however, depreciation expense for assets that essentially benefit all functions may be reported as a separate line item or on the same line as the General Government or similar function.


7.All purchases of goods and services and all interfund transfers of the General Fund are recorded as Expenditures. FALSEAll purchases of goods and services by the General Fund are classified as expenditures; however, interfund transfers out are classified as "other financing uses," not expenditures.


8.All decreases in fund financial resources, other than for repayment of fund liabilities, are termed "expenditures." FALSEExpenditures is defined as all decreases in fund financial resources other than through other financing uses, such as interfund transfers out.


9.Other financing sources increase fund balance in the same manner as revenues.TRUEOther financing sources include items such as interfund transfers and debt issue proceeds. They increase fund balance when closed.


10.Budgetary accounts used in the General Fund include Estimated Revenues, Estimated Other Financing Sources, Appropriations, Estimated Other Financing Uses, and Encumbrances. TRUEThese are the accounts listed in Illustration 3-3 as budgetary accounts.


11.All encumbrances must be closed at year-end.FALSEIf encumbrances are still outstanding at year-end and the government's policy is to honor the encumbrances, there is no need to close the Encumbrances account at year-end. If the government will not honor the outstanding encumbrances at year-end, the Encumbrances account should be closed by debiting Encumbrances Outstanding and crediting Encumbrances.


12.An encumbrance represents the estimated future liability for goods or services resulting from placing a purchase order or signing a contract. TRUEThis is an appropriate description of an encumbrance. An appropriation is not expended, however, until goods or services are received.


13.GASB standards require that all state and local governments present a statement of revenues, expenditures, and changes in fund balancesbudget and actual for the General Fund, and major special revenue funds for which annual budgets have been legally adopted.FALSEA budgetary comparison schedule is required supplementary information for the General Fund and major special revenue funds that have legally adopted budgets and should be placed immediately after the notes to the financial statements. This schedule may optionally take the form of the statement of revenues, expenditures, and changes in fund balances budget and actual and be included with the basic financial statements.


14.Available means that a revenue or other financing source is expected to be collected during the current fiscal period or within one month of the fiscal year end.FALSEAvailable means that the revenue or other financing source is expected to be collected during the current fiscal period or soon enough thereafter to pay current period obligations.In the case, of property taxes, GASB requires collection within 60 days after the end of the current period.


15.Revenues and expenditures reported in the budgetary comparison schedule must be reported on the budget basis in the "budget" column and on the GAAP basis in the "actual" column.FALSEThe budgetary basis must be used both for the budget and actual columns to facilitate meaningful comparison.


16."Available appropriation" is calculated as the difference between appropriations and the sum of expenditures and encumbrances.TRUEAs shown in Illustration 3-8, available appropriations is calculated as appropriations less the sum of expenditures and open encumbrances.

Difficulty: MediumQuestion Type: Calculation

17.Financial information for governmental funds must be reported on the economic resources measurement focus.FALSEAccording to GASB standards, governmental funds must be reported using the current financial resources measurement focus and the modified accrual basis of accounting.


18.An allotment may be described as an internal allocation of funds on a periodic basis usually agreed upon by the department heads and the chief executive. TRUEThis definition is consistent with the Chapter 3 discussion.


Multiple Choice Questions19.Which of the following best describes the recommended format for the government-wide statement of activities?

A.Program revenues minus expenses minus other revenues and expenses equals change in net position.

B.Program revenues plus general revenues minus expenses equals change in net position.

C.Program revenues minus expenses plus general revenues equals change in net position.

D.Expenses minus program revenues plus general revenues equals change in net position.


20.Which of the following statements is not a true statement about expenses that are directly related to a government function or program?

A.They are reported in the government-wide statement of activities at the government-wide level.

B.They include expenses that are specifically associated with a function or program.

C.They include interest on general long-term liabilities.

D.They include depreciation expense on capital assets that are clearly identified with a function or program.

Difficulty: HardQuestion Type: Concept

21.Which of the following are reported in the functions/programs section of the statement of activities at the government-wide level where they reduce the net expense of each function or program or produce a net revenue?

A.General revenues.

B.Program revenues.

C.Indirect revenues.

D.Extraordinary items.


22.Extraordinary items and special items are reported

A.With normal recurring general revenues.

B.As separate line items in the Function/Programs section of the statement of activities.

C.As separate line items below General Revenues in the statement of activities.

D.As separate line items above General Revenues.


23.Which of the following items would not appear in a statement of revenues, expenditures, and changes in fund balances prepared for a governmental fund?

A.Depreciation expense.

B.Interfund transfers in.

C.Revenues from property taxes.

D.Expenditures for employee salaries.


24.Which of the following would be classified as a general revenue?

A.Parking meter fees.

B.Special assessment charges for snow removal.

C.Library fines.

D.Fuel taxes earmarked for maintenance of roads and bridges.


25.Which of the following is not a budgetary account?

A.Encumbrances.


C.Estimated Revenues.

D.Appropriations.





C.A credit to Appropriations.

D.A credit to Fund Balance.

Difficulty: EasyQuestion Type: Journal Entry

27.When the budget of a government is recorded and Appropriations exceeds Estimated Revenues, the Budgetary Fund Balance account is

A.Credited at the beginning of the year and debited at the end of the year.

B.Credited at the beginning of the year and no entry is made at the end of the year.

C.Debited at the beginning of the year and no entry is made at the end of the year.

D.Debited at the beginning of the year and credited at the end of the year.

Difficulty: MediumQuestion Type: Journal Entry

28.Which of the following accounts is a budgetary account of a governmental fund?

A.Encumbrances Outstanding.

B.Estimated Other Financing Uses.

C.Expenditures.

D.Other Financing Sources.


29.The Estimated Revenues control account of a government is credited when

A.The budgetary accounts are closed: Yes; Revenues are recorded: No

B.The budgetary accounts are closed: No; Revenues are recorded: No

C.The budgetary accounts are closed: No; Revenues are recorded: Yes

D.The budgetary accounts are closed: Yes; Revenues are recorded: Yes


30.Under the modified accrual basis of accounting used by the General Fund, financial resources are considered available if they will be received in the current period or within

A.60 days after year-end.

B.90 days after year-end.

C.One year.

D.The time after year-end defined by each individual government.


31.Which of the following accounts of a government is credited when a purchase order is approved?

A.Encumbrances.


C.Vouchers Payable.

D.Appropriations.


32.The Expenditures control account of a government is debited when

A.The budget is recorded.

B.Supplies are ordered.

C.Supplies previously encumbered are received.

D.The invoice is paid.


33.Which of the following is true regarding other financing sources and other financing uses?

A.Both must be reported separately from revenues and expenditures in the statement of revenues, expenditures, and changes in fund balances.

B.These terms are used to distinguish program revenues or expenses from general revenues or expenses.

C.These terms are used for minor revenue or expenditure items that are peripheral to the government's mission.

D.Other financing sources are equivalent to gains and other financing uses are equivalent to losses.


34.Under which basis of accounting for a government should revenues be recognized in the period when they are measurable and available?

A.Accrual basis: No; Modified accrual basis: No

B.Accrual basis: Yes; Modified accrual basis: No

C.Accrual basis: Yes; Modified accrual basis: Yes

D.Accrual basis: No; Modified accrual basis: Yes


35.The expenditure classification "Public Safety" is an example of which of the following types of classifications?

A.Activity.

B.Function.

C.Character.

D.Object.


36.When supplies ordered for use in an activity accounted for in the General Fund are received at an actual price that is more than the estimated price on the purchase order, the Encumbrance account is

A.Debited for the estimated price on the purchase order.

B.Credited for the estimated price on the purchase order.

C.Debited for the actual price for the supplies received.

D.Credited for the actual price for the supplies received.


37.A statement of revenues, expenditures, and changes in fund balancesbudget and actual is

A.Required by GAAP for the General Fund, special revenue funds, and all other governmental fund types for which an annual budget has been adopted.

B.Required by GAAP for internal management reports only; not permitted for external financial reporting.

C.Required by GAAP for all governmental fund types.

D.Optional under GAAP, as long as a budgetary comparison schedule is presented.


38.The account "Interfund Transfers In" would be classified in a General Fund statement of revenues, expenditures, and changes in fund balance as a(an)

A.Revenue.

B.Other financing use.

C.Other financing source.

D.Current liability.


39.The expenditure classification "City Attorney" is an example of which of the following types of classification?

A.Function.

B.Organization unit.

C.Character.

D.Program.


40.When the budget of a government is adopted and Estimated Revenues exceed Appropriations, the excess is

A.Credited to Budgetary Fund Balance.

B.Debited to Budgetary Fund Balance.

C.Debited to Encumbrances Outstanding.

D.Credited to Encumbrances Outstanding.


41.Which of the following steps in the acquisition of goods and services by an activity accounted for by the General Fund generally occurs first?

A.Disbursement.

B.Appropriation.

C.Encumbrance.

D.Expenditure.


42.When equipment that is to be used by an activity accounted for by the General Fund of a government is received, it should be recorded in the General Fund as a(an)

A.Capital Asset.

B.Appropriation.

C.Encumbrances.

D.Expenditure.


43.The journal entry to record budgeted revenues will include

A.A debit to Estimated Revenues.

B.A credit to Estimated Revenues.

C.A debit to Revenues Receivable.

D.Only a memorandum entry is necessary.

ccc

44.The County Commission of Benton County adopted its General Fund budget for the year ending June 30, comprising estimated revenues of $3,200,000 and appropriations of $2,900,000. Benton County utilizes the budgetary accounts required by GASB standards. The journal entry to record budgeted appropriations will include

A.A credit to Appropriations, $2,900,000.

B.A credit to Encumbrances, $2,900,000.

C.A debit to Estimated Expenditures, $2,900,000.

D.A credit to Budgetary Fund Balance, $2,900,000.


45.The County Commission of Benton County adopted its General Fund budget for the year ending June 30, comprising estimated revenues of $3,200,000 and appropriations of $2,900,000. Benton County utilizes the budgetary accounts required by GASB standards. The budgeted excess of estimated revenues over appropriations will be recorded as

A.A credit to Surplus Revenues, $300,000.

B.A debit to Estimated Excess Revenues, $300,000.

C.A credit to Budgetary Fund Balance, $300,000.

D.A memorandum entry only.





C.A debit to Appropriations.

D.Either a debit or credit to Budgetary Fund Balance, as appropriate.


47.Fund balance may be classified as all of the following except

A.Restricted.

B.Committed.

C.Uncommitted.

D.Assigned.


48.Which of the following neither increases nor decreases fund balance of the General Fund during the current period?

A.Deferred revenues.

B.Revenues.

C.Expenditures.

D.Other financing sources.


49.The expenditure classification "Current Expenditures" is an example of which of the following types of classifications?

A.Activity.

B.Character.

C.Function.

D.Object.


50.Comparisons of budgeted versus actual revenues and expenditures are

A.Required by GAAP for the General Fund and major special revenue funds for which an annual budget has been legally adopted.

B.Required by GAAP for all governmental fund types.

C.Required by generally accepted accounting principles (GAAP) for internal management reports only; not permitted for external financial reporting.

D.Optional under GASB standards for all funds.


51.Which of the following statements is true regarding the required disclosure of budgetary information?

A.All budgetary disclosures should be presented in the notes to the financial statements.

B.There is one specific format for presenting the budgetary comparison statement.

C.Budgetary comparisons are required supplementary information (RSI).

D.The budgetary reconciliation must focus on the operating statement, but not the statement of position.


52.The Encumbrances control account of a city is decreased when

A.Goods are ordered: No; Goods are received: No

B.Goods are ordered: Yes; Goods are received: No

C.Goods are ordered: Yes; Goods are received: Yes

D.Goods are ordered: No; Goods are received: Yes


53.Under the modified accrual basis of accounting, expenditures generally are not recognized until

A.They are paid in cash.

B.An obligation is incurred that will be paid from currently available financial resources.

C.Goods or services are ordered.

D.They are approved by the legislative body.


54.Which of the following fund types uses the current financial resources measurement focus and modified accrual basis of accounting?

A.Enterprise fund.

B.Special revenue fund.

C.Investment trust fund.

D.Pension trust fund.


55.Which of the following will increase the fund balance of a government at the end of the fiscal year?

A.The sum of revenues and other financing sources is more than the sum of expenditures and other financing uses.

B.Expenditures are more than the difference between revenues and the excess of other financing sources over other financing uses.

C.Revenues are more than the sum of expenditures, other financing sources, and other financing uses.

D.The sum of fund balance, revenues, and other financing sources is more than the sum of expenditures and other financing uses.


56.Which of the following fund types is most likely to have a legally adopted annual budget?

A.Permanent fund.

B.General Fund.

C.Pension trust fund.

D.Capital projects fund.


57.A liability is recorded in governmental funds when:

A.Goods or services are ordered.

B.Goods or services are received and the invoice is vouchered.

C.Invoices are paid.

D.The appropriation is reduced.


58.Which of the following terms refers to an actual cost rather than an estimate?

A.Budget.

B.Encumbrance.

C.Expenditure.

D.Appropriation.


59.For what funds do budgetary comparisons need to be presented in connection with the basic financial statements?

A.General Fund.

B.General Fund and all major funds.

C.All governmental funds with legally adopted annual budgets.

D.General Fund and major special revenue funds for which a budget is legally adopted.


60.When computers are ordered by the mayor's office, the purchase order should be recorded in the General Fund as a debit to:

A.Encumbrances.

B.Equipment.

C.Expenditures.

D.Appropriations.


61.If supplies that were ordered by a department financed by the General Fund are received at an actual price that is less than the estimated price on the purchase order, the departments available balance of appropriations for supplies will be

A.Decreased.

B.Increased.

C.Unaffected.

D.Either a or b, depending on the departments specific budgetary control procedures.


62.The Appropriations account of a governmental fund is credited when

A.The budgetary accounts are closed.

B.The budget is recorded.

C.Supplies are purchased.

D.Expenditures are recorded.


63.If a state law requires that local governments prepare General Fund and special revenue fund budgets on a basis that differs from the basis of accounting required by generally accepted accounting principles (GAAP)

A.The actual amounts in the budgetary comparison schedule should be reported using the government's budgetary basis.

B.The actual amounts in the budgetary comparison schedule should be reported on the GAAP basis.

C.Both the budgeted and actual amounts in the budgetary comparison schedule prepared as part of the required supplementary information (RSI) should be reported on the GAAP basis; a separate budget-basis comparison schedule should be prepared for the appropriate state oversight body.

D.Only a budgetary comparison schedule prepared for the appropriate state oversight body is required.


64.The Expenditures control account of a government is credited when:

A.Supplies are ordered.

B.Supplies previously encumbered are received.

C.The budget is recorded.

D.Temporary accounts are closed out at the end of the year.


Short Answer Questions65.GASB standards suggest the following classification scheme for expenditures: A. Function B. Program C. Organization unit D. Activity E. Character F. Object

For each of the following expenditure items, indicate its correct classification by placing the appropriate letter in the blank space next to the item.

____ 1.Solid waste collectionresidential____ 2.City clerk ____ 3.Supplies ____ 4.Transportation ____ 5.Health and welfare


66.The revenue classifications recommended by GASB standards are listed below:A. TaxesB. Licenses and permitsC. Intergovernmental revenueD. Charges for servicesE. Fines and forfeitsF. Miscellaneous

For each revenue source listed below indicate its correct classification by placing the appropriate letter in the blank space next to the item.

____ 1. Capital grant received by a city from a state____ 2. Property tax levied by city____ 3. Library use fees____ 4. Occupational licenses____ 5. Loitering fine


67.The Charleston city council approved and adopted its budget for FY 2014. The budget for the General Fund contained the following amounts:

When the General Fund budget for FY 2014 is recorded, indicate whether each of the following accounts should be debited (D), credited (C), or is not affected (N).

_____ 1.Estimated revenues _____ 2.Budgetary Fund balance _____ 3.Appropriations _____ 4.Estimated other financing uses _____ 5.Expenditures


68.The City of Charleston recorded its FY 2014 property tax levy in the general fund. It was estimated that $6,000 would be uncollectible. When the tax levy is recorded, indicate whether each of the following accounts of the General Fund should be debited (D), credited (C), or is not affected (N).

_____ 1.Taxes Receivable Current _____ 2.Bad Debt Expense _____ 3.Estimated Uncollectible Current Taxes _____ 4.Revenues _____ 5.Estimated revenues


69.When encumbrances are recognized at the time purchase orders are issued, indicate whether each of the following accounts of the General Fund should be debited (D), credited (C), or is not affected (N).

_____ 1.Encumbrances _____ 2.Encumbrances Outstanding _____ 3.Expenditures _____ 4.Vouchers payable _____ 5.Purchases


70.An interfund transfer of $30,000 was made from the General Fund to the debt service fund. (No previous entries were made regarding this transaction). When this event occurred, indicate whether each of the following accounts of the General Fund should be debited (D), credited (C), or is not affected (N).

_____ 1.Interfund Loan to Debt Service FundNoncurrent._____ 2.Due from Debt Service Fund._____ 3.Cash._____ 4.Other Financing UsesInterfund Transfers Out._____ 5.Encumbrances.


Essay Questions71.Define the term revenue and distinguish between that term and other financing sources.


72.Distinguish between the Encumbrances account and the Encumbrances Outstanding account.


73.Explain why governmental fund financial statements are insufficient for users seeking information about operational accountability.


74.What benefits do financial statement users derive from the net (expense) revenue format used for the government-wide statement of activities?


75.Why is depreciation expense typically reported as a direct expense in the government-wide statement of activities?


76.The Board of Aldermen of Fitchburg approved the appropriations budget for its General Fund for the year ending December 31, as shown below.

1) Explain the legal significance of an appropriation and why auditors engaged for a financial and compliance audit need to know the meaning of the term.2) It is illegal for a government to spend money for any purpose unless a valid appropriation for that purpose exists. Does this legal rule assure good financial management for each government? Why or why not?

1) An appropriation is an authorization for administrators to incur on behalf of the government liabilities in the amounts specified in the appropriation ordinance or statute, for the purposes set forth in that ordinance or statute, during the period of time specified. The auditor must attempt to ascertain that there were no material expenditures in violation of the appropriation ordinance or resolution. 2) Not necessarily. If the appropriation budget is prepared mechanically (with very little thought as to what services should be rendered and how the services should be delivered) adhering to the budget may be poor financial management. On the other hand, if the budget relates input of resources to output of services, that have been well planned to meet clearly specified objectives, adhering to the budget should be good financial management.

Difficulty: HardQuestion Type: Analysis

2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Documents

chap4