Exam 1 Study Guide Govermental

8/6/2019 Exam 1 Study Guide Govermental

1/21

Accountancy 4365/7365Exam 1 Study Guide

Summer 2011

Exam 1 will cover Chapters 1-6 of the textbook. The exam may consist of multiple-choice

questions, matching, and problems requiring the preparation of journal entries. You will

not be asked to prepare any financial statements on the exam. In order to properly preparefor this exam, I recommend reading Chapters 1-6 in the textbook, reviewing the

PowerPoint slides, and practicing the suggested homework problems assigned for each

chapter. There are also a number of journal entry examples in the textbook that would be

beneficial for you to review. Additionally, you should make sure you have a goodunderstanding of the bold-faced terms from each chapter. Specific suggestions for what

information to focus on in Chapters 1-6 are as follows:

Chapter 1

Understand what distinguishes governmental and not-for-profit entities frombusiness organizations

1. Benefits are not proportional to resources provided

2. Lack of a profit motive3. Absence of transferable ownership rights

Be able to determine whether a not-for-profit organization should be considered a

governmental entity1. Public corporations and bodies corporate and politic

2. Other organizations with one or more of the following characteristics:1. Popular election of officers or appointment of a controlling majority

of the governing body by officials of another government

2. Potential dissolution by a government with net assets reverting to a

government3. Power to enact and enforce a tax levy

4. Guidance from the AICPA states that NPOs who meet any of the

above characteristics are considered to be governmental entities.5. Public corporations and bodies corporate and politic public

hospital, public library, public college as opposed to private

hospital, private library, or private college

3. Know the minimum financial reporting requirements for state and local

governments (Illustration 1-3)

1. GASB standards recommend, but dont require, that eachgovernmental entity prepare a CAFR. The minimum

reporting requirements to meet generally accepted

accounting principles (GAAP) were listed on the previousslide: MD&A, Basic Financial Statements, and RSI other


2/21


3/21

U.S. Comptroller General, Secretary of the Treasury, and Director of

the Office of Management and Budget.

5. Financial Accounting Standards Board (FASB)

1. The designated organization in the private sector for establishing

standards of financial accounting and reporting since 1973.

6. Fiscal accountability1. Current-period financial position and budgetary compliance reported

in fund-type financial statements of governments. See also Financial

Accountability.

7. Fund financial statements

1. A category of the basic financial statements that assist in assessing

fiscal accountability.

8. General purpose governments

1. Governments that provide many categories of services to their

residents, such as states, counties, municipalities, and townships.

Typical services include public safety, road maintenance, and health

and welfare.9. Generally accepted accounting principles (GAAP)1. The body of accounting and financial reporting standards,

conventions, and practices that have authoritative support from

standards-setting bodies such as the Governmental Accounting

Standards Board and the Financial Accounting Standards Board, or

for which a degree of consensus exists among accountingprofessionals at a given point in time. Generally accepted accounting

principles are continually evolving as changes occur in the reporting

environment.

10. Governmental Accounting Standards Board (GASB

1. )The independent agency established under the Financial

Accounting Foundation in 1984 as the official body designated bythe AICPA to set accounting and financial reporting standards for

state and by the AICPA local governments.

11. Government-wide financial statements1. Two statements prescribed by GASBS 34 designed to provide a

highly aggregated overview of a government's net assets and results

of financial activities.

12. Interperiod equity

1. A term coined by the Governmental Accounting Standards Board

indicating the extent to which current-period revenues are adequate

to pay for current-period services.

13. Major fund

1. Funds are classified as major if they are significantly large with

respect to the whole government. A fund is "major" if (a) totalassets, liabilities, revenues, or expenditures/expenses of the

individual governmental or enterprise fund are at least 10 percent of

the corresponding total of assets, liabilities, revenues, or

expenditures/expenses for all funds of that category or type (total


4/21

governmental or total enterprise funds), and (b) total assets,

liabilities, revenues, or expenditures/expenses of the individual

governmental fund or enterprise fund are at least 5 percent of thecorresponding total for all governmental and enterprise funds

combined.

14. Management's Discussion and Analysis (MD&A)1. Narrative information, in addition to the basic financial statements,

in which management provides a brief, objective, and easily

readable analysis of the governments financial performance for theyear and its financial position at year-end. An MD&A is required by

GASBS 34 for state and local governments and by FASABs

SFFAC No. 3 for federal agencies.

15. Operational accountability

1. Information useful in assessing operating results and short- and

long-term financial position and the cost of providing services from

an economic perspective reported in entitywide financial statements.

16. Required supplementary information (RSI)1. Information that is required by generally accepted accounting

principles to be included with the audited annual financialstatements, usually directly following the notes to the general

purpose external financial statements.

17. Service efforts and accomplishments (SEA)

1. A conceptualization of the resources consumed (inputs), tasksperformed (outputs), goals attained (outcomes), and the relationship

among these items in providing services in selected areas (e.g.,

police protection, solid waste garbage collection, and elementaryand secondary education).

18. Special purpose governments

1. Governments that provide only a single function or a limited numberof functions, such as independent school districts and special

districts. Formerly called limited purpose governments.

Chapter 2

1. Accrualbasisa. The basis of accounting under which revenues are recorded when earned

and expenditures (or expenses) are recorded as soon as they result in

liabilities for benefits received, notwithstanding that the receipt of cash orthe payment of cash may take place, in whole or in part, in another

accounting period. See also Accrue and Levy.

2. Agencyfundsa. Funds consisting of resources received and held by the government as an

agent for others; for example, taxes collected and held by a municipality for

a school district. Note: Sometimes resources held by a government for other


5/21

organizations are handled through an agency fund known as a pass-through

agency fund

3. Available

a. Collectible within the current period or soon enough thereafter to be used to

pay liabilities of the current period.

4. Blendedpresentationa. The method of reporting the financial data of a component unit in a manner

similar to that in which the financial data of the primary government are

presented. Under this method the component unit data are usually combinedwith the appropriate fund types of the primary government and reported in

the same columns as the data for the primary government except General

Funds. See Discrete Presentation.

5. Business-typeactivitiesa. Commercial-type activities of a government, such as public utilities (e.g.,

electric, water, gas, and sewer utilities), transportation systems, toll roads,

toll bridges, hospitals, parking garages and lots, liquor stores, golf courses,

and swimming pools.6. Capitalprojectsfunds

a. A fund created to account for all resources to be used for the construction oracquisition of designated capital assets by a government except those

financed by proprietary or fiduciary funds.

7. Componentunits

a. Separate governments, agencies, or not-for-profit corporations that,pursuant to the criteria in the GASB Codification, Section 2100, are

combined with other component units to constitute the reporting entity

(q.v.).8. Currentfinancialresources

a. Cash or items expected to be converted into cash during the current period

or soon enough thereafter to pay current period liabilities.

9. Debt service funds

a. A fund established to finance and account for the payment of interest and

principal on all tax-supported debt, serial and term, including that payablefrom special assessments.

10. Discretepresentationa. The method of reporting financial data of component units in a column(s)

separate from the financial data of the primary government.

11. Economic resources measurement focus

a. Attention on measuring the total economic resources that flow in and out of

the government rather than on measuring current financial resources only.12. Enterprisefunds

a. A fund established to finance and account for the acquisition, operation, and

maintenance of governmental facilities and services that are entirely orpredominantly self-supporting by user charges; or for when the governing

body of the government has decided periodic determination of revenues

earned, expenses incurred, and/or net income is appropriate.


6/21


7/21

a. A generic classification used by the GASB to refer to all funds other than

proprietary and fiduciary funds. The General Fund, special revenue funds,

capital projects funds, debt service funds, and permanent funds are the typesof funds referred to as governmental funds.

22. Internal service funds

a. Funds established to finance and account for services and commoditiesfurnished by a designated department or agency to other departments and

agencies within a single government or to other governments. Amounts

expended by the fund are restored thereto either from operating earnings orby transfers from other funds, so that the original fund capital is kept intact.

Formerly called a working capital fund or intragovernmental service fund.

23. Investment trust funds

a. Funds used to account for the assets, liabilities, net assets, and changes innet assets corresponding to the equity of the external participants.

24. Major funds

a. Funds are classified as major if they are significantly large with respect to

the whole government. A fund is "major" if (a) total assets, liabilities,revenues, or expenditures/expenses of the individual governmental or

enterprise fund are at least 10 percent of the corresponding total of assets,liabilities, revenues, or expenditures/expenses for all funds of that category

or type (total governmental or total enterprise funds), and (b) total assets,

liabilities, revenues, or expenditures/expenses of the individual

governmental fund or enterprise fund are at least 5 percent of thecorresponding total for all governmental and enterprise funds combined.

25. Modified accrual basis

a. Under the modified accrual basis of accounting, required for use bygovernmental funds (q.v.), revenues are recognized in the period in which

they become available and measurable, and expenditures are recognized at

the time a liability is incurred pursuant to appropriation authority.

26. Pension trust funds

a. The organizations that collect retirement and other employee benefit

contributions from government employers and employees, manage assets,and make payments to qualified retirants, beneficiaries, and disabled

employees.

27. Permanent funds

a. Governmental-type funds used to account for public-purpose trusts forwhich the earnings are expendable for a specified purpose, but the principal

amount is not expendable (i.e., an endowment).

28. Primary government

a. A state government or general purpose local government. Also, a special-

purpose government that has a separately elected governing body, is legally

separate, and is fiscally independent of other state or local governments.

29. Private-purpose trust funds

a. Funds that account for contributions received under a trust agreement in

which the investment income of an endowment is intended to benefit an

external individual, organization, or government.


8/21

30. Proprietary funds

a. Sometimes referred to as income determination, business-like, or

commercial-type funds of a state or local government. Examples areenterprise funds and internal service funds.

31. Reporting entity

a. The primary government and all related component units, if any, combinedin accordance with GASB Codification Section 2100 constitute the

governmental reporting entity.

32. Special revenue funds

a. Funds used to account for revenues from specific taxes or other earmarked

revenue sources that by law are designated to finance particular functions or

activities of government. After the fund is established, it usually continues

year after year until discontinued or revised by proper legislative authority.An example is a motor fuel tax fund used to finance highway and road

construction.

In Chapter 2, you will learn about the different types of funds used by governmentalentities.

Activites of Government

o Governmental Activities

o Business-Type Activities

o Fiduciary Activities

The following two sets of basic financial statements are required:

o Government-Wide Financial Statements (Illustrations 1-4, 1-5, and 2-1)

Present financial information using the accrual basis of accounting

and the economic resources measurement focus (i.e., similar to for-

profit companies)

Report the primary governments financial information in twocolumns (Governmental Activities and Business-Type Activities)

Internal Service Fund information is usually reported in theGovernmental Activities column

Fiduciary activities are not reported at all in the Government-Wide

Financial Statements

o Fund Financial Statements (Illustrations 1-6 through 1-13 and 2-1)

Two financial statements for Governmental Funds

A category used for all funds other than those considered to

be Proprietary Funds or Fiduciary Fundso Types

General Fund

Only one per governmental entity

Used to account for most general

government operating activities

Special Revenue Funds


9/21


10/21

Enterprise Funds are reported as Business-

Type Activities in the Government-WideFinancial Statements

Examples include electric and water utilities,

airports, golf courses, parking garages,

transportation systems, and liquor stores Two financial statements for Fiduciary Funds

Any fund held by a governmental unit in a fiduciary capacity

(agent or trustee) for an external party

o Agency Funds

Used to account for financial resources in

which the government is acting in an agency

capacity

Accounting is simple: Assets = Liabilities

No revenue, expense, or fund equity accounts

are used

Examples are tax agency funds, specialassessment debt service funds, and pass-

through agency funds

o Investment Trust Funds

Used to account for external investment poolsin which the assets are held for other external

governments along with funds of the

sponsoring government

The assets, liabilities, net assets, and changes

in net assets corresponding to the equity of

the external participants are reported in these

funds.

o Private-Purpose Trust Funds

Used to account for nonexpendable financial

resources in which the government is actingin a trustee capacity

Created to benefit private individuals

Accounting is virtually identical to that of an

Enterprise Fund

o Pension Trust Funds

Used to account for financial resources in

which the government is acting in a trusteecapacity for the employees of the governmentto provide retirement benefits

Follow business-type accounting practices

o

Illustration 2-3 provides a great summary of the characteristics of each fund type.

Understand the measurement focus and basis of accounting concepts

n Modified Accrual Basis


11/21

1. Revenues are recognized when measurable and available

2. Expenditures are recognized when incurred

n Accrual Basis (or Full Accrual Basis)1. Revenues are recognized when earned

2. Expenses are recognized when incurred

n

Economic Resources Measurement Focus1. Report on the determination of financial position, net income, and

cash flows (i.e., capital maintenance)

2. Used to assess operational accountability

n Current Financial Resources Measurement Focus

1. Report on the inflows and outflows of current financial resources

(cash or other items expected to be converted into cash during the

current period)2. Used to assess fiscal accountability

Know what a governmental financial reporting entity consists of1. primary government is:

1. A state government,

2. A general-purpose local government (e.g., city, town,county, etc.), or a

3. Special-purpose government that has a separately elected

governing body, is legally separate, and is fiscally

independent of other state or local governments.AND2. The component units of the primary government

1. A component unit is:2. A legally separate organization for which the elected

officials of a primary government are financially accountable

Know the characteristics of each fund type (Illustration 2-2)


12/21

Think about different fund types like different savings accounts. Lets say your parents give

you a certain amount of money each month for college expenses (tuition and books). And

lets also say that you have a job. The money you make from your job goes towardsapartment expenses (rent, utilities, telephone), groceries, gas, and extracurricular activities.

If you wanted to segregate your money to make sure you had money set aside to cover

each of those expenses, you could set up separate savings accounts. You might set up onesavings account for your college expenses, and all the money your parents give you gets

deposited directly into this account. That way, you don't accidentally spend that money on

other things like groceries or extracurricular activities. Then you might set up anothersavings account to set aside money from your job that needs to cover your apartment

expenses, groceries, and gas. Finally, you might set up a third savings account to set aside

any leftover money that can be used for extracurricular activities and other miscellaneous

expenses. Now, I realize you probably wouldn't really set up three different savingsaccounts like I have suggested above. This is just an example to try to help you understand

the purpose of a governmental entity setting up different funds. Each fund is like a separate

savings account for the governmental entity. The purpose of having different funds is to

segregate money, so the governmental entity can make sure the money they receive fromvarious resources is spent on what it was intended to be used for. Each fund has its own set

of books which a governmental entity must record journal entries into, and trial balancesand financial statements are then prepared for each individual fund.

It is equally important for you to understand that there are two sets of financial statements

that must be prepared for governmental entities. These two sets of financial statements areessentially presenting the same financial information, but in different ways. The

government-wide financial statements are like a for-profit company's consolidated

financial statements that provide a picture of how efficiently and how effectively thegovernmental entity is performing overall. The fund financial statements are like the

individual subsidiary financial statements of a for-profit company. These financial

statements are used to ensure the government is staying within the budget and complyingwith the applicable laws and regulations for each individual fund.

Chapter 3

1. Activity

a. A specific and distinguishable line of work performed by one or more

organizational components of a government for the purpose of

accomplishing a function for which the government is responsible. Forexample, food inspection is an activity performed in the discharge of the

health function. See also Function, Subfunction, and Subactivity.

2. Ad valorem property taxesa. In proportion to value. A basis for levy of taxes on property.

3. Allotment

a. A part of an appropriation (or, in federal usage, parts of an apportionment)that may be encumbered (obligated) or expended during an allotment

period.

4. Appropriation


13/21

a. Authorizations granted by a legislative body to incur liabilities for purposes

specified in the Appropriation Act (q.v.). Note: An appropriation is usually

limited in amount and as to the time when it may be expended. See,however, Indeterminate Appropriation.

5. Budgetary accounts

a. Those accounts that reflect budgetary operations and condition, such asestimated revenues, appropriations, and encumbrances, as distinguished

from proprietary accounts. See also Proprietary Accounts.

6. Character

a. A basis for distinguishing expenditures according to the periods they are

presumed to benefit. See also Character Classification.

7. Direct expenses

a. Those expenses that can be charged directly as a part of the cost of aproduct or service or of a department or operating unit as distinguished

from overhead and other indirect costs that must be prorated among several

products or services, departments, or operating units.

8. Encumbrancesa. Accounts used to record the estimated amount of purchase orders, contracts,

or salary commitments chargeable to an appropriation. The account iscredited when goods or services are received and the actual expenditure of

the appropriation is known.

9. Estimated other financing sources

a. Amounts of financial resources estimated to be received or accrued during aperiod by a governmental or similar type fund from interfund transfers or

from the proceeds of noncurrent debt issuance.

10. Estimated other financing uses

a. Amounts of financial resources estimated to be disbursed or accrued during

a period by a governmental or similar type fund for transfer to other funds.

11. Estimated revenues

a. For revenue accounts kept on an accrual basis (q.v.), this term designates

the amount of revenue estimated to accrue during a given period regardless

of whether or not it is all to be collected during the period. For revenueaccounts kept on a cash basis (q.v.), the term designates the amount of

revenue estimated to be collected during a given period. Under the modified

accrual basis (q.v.), estimated revenues are those that are measurable and

available. See also Revenue, Cash Basis, Accrual Basis, and ModifiedAccrual Basis.

12. Extraordinary items

a. Unusual and infrequent material gains or losses.

13. Functions

a. A group of related activities aimed at accomplishing a major service or

regulatory responsibility for which a government is responsible. Forexample, public health is a function. See also Subfunction, Activity,

Character, and Object.

14. General revenues


14/21

a. Revenues that are not directly linked to any specific function or do not

produce a net revenue.

15. Indirect expensesa. Those expenses that are not directly linked to an identifiable function or

program.

16. Objecta. A basis for distinguishing expenditures by the article purchased or the

service obtained (as distinguished from the results obtained from

expenditures). Examples are personal services, contractual services,materials, and supplies.

17. Organization unit

a. Units or departments within an entity, such as police department or city

attorney department.

18. Other financing sources

a. An operating statement classification in which financial inflows other than

revenues are reported, for example, proceeds of long-term debt and transfers

in.19. Other financing usesa. An operating statement classification in which financial outflows other than

expenditures are reported, for example, transfers out.

20. Penalty

a. A legally mandated addition to a tax on the day it became delinquent

(generally, the day after the day the tax is due).

21. Program revenues

a. Revenues linked to a specific function or program and reported separately

from general revenues on the government-wide statement of activities.

22. Programs

a. Activities, operations, or organizational units grouped together because they

share purposes or objectives.

23. Property assessment

a. A process by which each parcel of taxable real and personal property owned

by each taxpayer is assigned a valuation.

24. Special items

a. Operating statement items that are either unusual or infrequent and are

within management control.

25. Taxable property

a. All property except that which is exempt from taxation; examples of exempt

property are property owned by governments and property used by some

religious and charitable organizations.

Understand the difference between direct and indirect expenses and the difference

between program revenues and general revenues1. Expenses should be reported by function or program

1. Direct Expenses: Those directly associated with a function or

program


15/21

2. Indirect Expenses: Those that are not directly linked to an

identifiable function

2. Revenues should be distinguished between1. Program Revenues: Reported in the program/functions section of

the statement

2. General Revenues: Not directly linked to any program/function,these are reported in a separate section

Know what types of transactions would be classified as Other Financing Sources

and Other Financing Uses in the financial statements1. Other Financing Sources (OFS) represent operating transfers in from other

funds and proceeds of long-term borrowing

2. Other Financing Uses (OFU) represent operating transfers out to other

fundsIn Chapter 3, you need to have a good understanding of the 5 budgetary accounts: Estimated

Revenues, Estimated Other Financing Sources (OFS), Appropriations, Encumbrances, and

Estimated Other Financing Uses (OFU). Estimated Revenues, Estimated Other Financing Sources,

and Encumbrances are debited when recording budgetary entries to these accounts. Appropriations

and Estimated Other Financing Uses are credited when recording budgetary entries to these

accounts. There are only 3 times you should make journal entries to Estimated Revenues,

Estimated OFS, Appropriations, and Estimated OFU: (1) At the beginning of the year to record the

approved budget, (2) During the year if there are any amendments to the budget, and (3) At the end

of the year to close the budgetary accounts. Encumbrances is the only budgetary account that you

will make entries to throughout the year as goods/services are ordered and received or as contracts

are signed and fulfilled.

Please make sure you understand that Other Financing Sources is a special type of revenue account

used in governmental accounting to record the proceeds of bonds or cash transferred into a fund

from another fund (that will not be re-paid), and Other Financing Uses is a special type of

expenditure account used in governmental accounting to record cash transferred out of one fund

and into another (that will not be re-paid).

Know the budgetary accounts and review Illustration 3-3 and Illustration 3-4

Be able to record the original budget at the beginning of a fiscal year, record

amendments to the budget, and close budget accounts at the end of the fiscal year

Chapter 4

Review and have a good understanding of the journal entries shown in Chapter 4 ofthe textbook in the Illustrative Journal Entries section and the Accounting for

Property Taxes section

Know what makes a governmental funds interim financial statements different

from its year-end financial statements (Note: You will not be asked to prepareinterim or year-end financial statements for this exam)

Understand the purpose for using a special revenue fund

1. Special Revenue Funds are created when revenues are received that areearmarked for a specific operating purpose

1. Examples include:

1. Motor fuel taxes earmarked for streets, roads, and bridges


16/21


17/21


18/21

4. Capital improvements funda. A fund to accumulate revenues from current taxes levied for major repairs

and maintenance to capital assets of a nature not specified at the time therevenues are levied. Appropriations of this fund are made in accord with

state law at the time specific projects become necessary.

5. Capital leasesa. A lease that substantively transfers the benefits and risks of ownership of

property to the lessee. Any lease that meets certain criteria specified in

applicable accounting and reporting standards is a capital lease. See alsoOperating Lease.

6. Capital projects funds

a. A fund created to account for all resources to be used for the construction or

acquisition of designated capital assets by a government except thosefinanced by proprietary or fiduciary funds.

7. Force account construction

a. The determination of the cost of construction of buildings and

improvements by some agency of the government.8. General capital assetsa. Those capital assets of a government that are not recognized by a

proprietary or fiduciary fund.

9. Historical cost

a. The amount paid or liability incurred by an accounting entity to acquire an

asset and make it ready to render the services for which it was acquired.

10. Infrastructure assets

a. Roads, bridges, curbs and gutters, streets, sidewalks, drainage systems, and

lighting systems installed for the common good. See also Improvements.

11. Intangible assets

a. Capital assets that lack physical substance, have a useful life of more than

one reporting period, and are nonfinancial in nature.12. Interfund transfers

a. Amounts transferred from one fund to another.

13. Modified approach

a. An approach that allows the government to elect not to depreciate certain

eligible infrastructure assets provided certain requirements are met.

14. Operating leases

a. A rental-type lease in which the risks and benefits of ownership aresubstantively retained by the lessor, and thus do not meet the criteria

defined in applicable accounting and reporting standards for a capital lease

(q.v.).

15. Special assessments

a. A compulsory levy made against certain properties to defray part or all of

the cost of a specific improvement or service that is presumed to be ageneral benefit to the public and of special benefit to such properties.

Review Illustration 5-1 to understand how general capital assets are recorded

1. General Capital Assets are:


19/21


20/21

Review and have a good understanding of the journal entries shown in Chapter 5 of

the textbook in the Illustrative Entries section and the Illustrative Transactions

Capital Projects Funds section

Chapter 6

Know where general long-term liabilities are recorded

1. All General Long-Term Liabilities are reported in the Governmental

Activities column of the Government-Wide Statement of Net Assets.1. They are NOT reported as liabilities of Governmental Funds in the

fund financial statements.

2. A Debt Service Fund may be established to account for the principal and

interest payments on General Long-Term Liabilities.

Know what the required disclosures are for debt

Understand the terms debt limit and debt margin and be able to compute the

debt limit and legal debt margin

1. Debt Limit1. A ceiling on the amount of debt a governmental entity is allowed to

take on2. Typically defined as a statutory percentage of assessed valuation or

some other valuation of taxable property

2. Debt Margin1. The difference between the debt limit and the amount of debt

outstanding subject to the limit

2. Self-supporting debt being repaid from user charges (i.e., water orsewer charges) is typically not subject to the limit

3. Usually only net debt (total debt minus cash available for principal

repayment in a Debt Service Fund) is subject to the limit Understand the difference between serial bonds and term bonds, and know the 4

different types of serial bonds

1. Serial Bonds - Principal matures in annual installments, For regular serialbonds, resources raised each year approximate debt service requirements;

thus, investments will be minimal. However, any idle cash balances should

be invested. For deferred serial bonds, some resources are likely to be

raised and invested during the years before the first principal paymentbecomes due. Advantage: Self-amortizing, no sinking fund needed

1. Regular Serial Bonds

1. The total principal is repayable in a specified number of

equal annual installments over the life of the issue2. Deferred Serial Bonds

1. The first installment is delayed for a period of more than oneyear after the date of the issue, but installments are due on a

regular basis thereafter

3. Annuity Serial Bonds


21/21

1. The amount of annual principal repayments is scheduled to

increase each year by approximately the same amount

interest payments decrease4. Irregular Serial Bonds

1. The pattern of repayment does not fit into any of the other

three serial bond categories listed above2. Term Bonds - Principal matures in one lump-sum amount at the end of the

bond term. Not used as frequently for financing as serial bonds.

Disadvantages: Usually requires a sinking fund and therefore, investmentmanagement, and involves more complex accounting than serial bonds

Review the journal entry examples shown in Chapter 6 of the textbook for regular

serial bonds and term bonds

You will learn that we do not record capital assets in governmental funds. Capital assets that

have been acquired or constructed with governmental fund money should immediately be

recorded as an expenditure in governmental funds (at the fund level). This is because capital

assets are long-term in nature, and we only focus on the short-term with our governmentalfunds. However, we do have to record such capital assets at the government-wide level in

Governmental Activities. So when a capital asset has been acquired or constructed with

governmental fund money, we would typically debit an expenditure account at the

governmental fund level, while we would debit a capital asset account (building, equipment,

etc.) at the government-wide level.

Documents

Exam 1 Study Guide Govermental