Governmental and Nonprofit Entities Practice Exam

Governmental and Nonprofit Entities Practice Exam

General Fund Accounting

Q: What is the primary purpose of the General Fund?
A: To account for resources not required to be accounted for in another fund.
Q: How are revenues recognized in governmental funds?
A: When they are measurable and available.
Q: What are encumbrances?
A: Commitments related to unperformed contracts for goods or services.

Financial Reporting

Q: What financial statement provides an overview of a government’s financial position?
A: The Statement of Net Position.
Q: What are the two government-wide financial statements?
A: Statement of Net Position and Statement of Activities.
Q: What is the modified accrual basis of accounting?
A: Revenues are recognized when measurable and available; expenditures are recognized when incurred.

Fund Types

Q: What are the major types of governmental funds?
A: General, Special Revenue, Capital Projects, Debt Service, and Permanent Funds.
Q: What is the purpose of proprietary funds?
A: To account for activities similar to private businesses.
Q: What are fiduciary funds used for?
A: To account for resources held for others in a trustee or agency capacity.

Budgetary Accounting

Q: What is a legally adopted budget?
A: A financial plan approved by a governing body.
Q: What is the purpose of a budgetary comparison schedule?
A: To compare the original and final budget with actual results.
Q: What are appropriations?
A: Authorized expenditures in the budget.

Governmental Accounting Standards

Q: What does GASB stand for?
A: Governmental Accounting Standards Board.
Q: What is GASB Statement No. 34?
A: It establishes new financial reporting requirements for state and local governments.
Q: What is the primary focus of governmental fund financial statements?
A: Current financial resources.

Nonprofit Entities

Q: What is the accounting basis used by nonprofit entities?
A: Accrual basis.
Q: What are the three net asset classifications for nonprofits?
A: Net assets without donor restrictions, net assets with donor restrictions, and temporarily restricted.
Q: What is a Statement of Functional Expenses?
A: A financial statement showing expenses by function and natural classification.

Revenue Recognition

Q: How are grants and contributions recognized?
A: When received or unconditionally pledged.
Q: What are exchange transactions in nonprofit accounting?
A: Transactions where goods or services are exchanged for payment.
Q: What is the primary source of revenue for governmental entities?
A: Taxes and intergovernmental revenues.

Debt and Capital Assets

Q: How are capital assets reported in government-wide statements?
A: At historical cost less accumulated depreciation.
Q: What are bond proceeds classified as in governmental funds?
A: Other financing sources.
Q: How is long-term debt reported in governmental funds?
A: It is not reported; instead, it appears in the government-wide statements.

Auditing and Compliance

Q: What is the Single Audit Act?
A: A federal law requiring audits of entities that spend $750,000 or more in federal funds.
Q: What is compliance auditing?
A: Auditing to ensure adherence to laws, regulations, and grant agreements.
Q: What is the purpose of an audit opinion?
A: To express an auditor’s conclusion on the fairness of financial statements.

Performance and Accountability

Q: What are service efforts and accomplishments (SEA)?
A: Measures that assess the efficiency and effectiveness of services provided.
Q: What is the primary objective of governmental financial reporting?
A: Accountability and decision-making usefulness.
Q: What is an MD&A in government reporting?
A: Management’s Discussion and Analysis, providing an overview of financial performance.

General Governmental Accounting Concepts

Q: What are the primary objectives of governmental financial reporting?
A: Accountability and decision-making usefulness.
Q: What are the three main types of activities in government-wide financial statements?
A: Governmental activities, business-type activities, and fiduciary activities.
Q: What basis of accounting is used in government-wide financial statements?
A: Accrual basis.
Q: How do governmental and proprietary funds differ?
A: Governmental funds focus on current financial resources, while proprietary funds operate like private businesses.
Q: What is the purpose of fiduciary funds?
A: To account for resources held for the benefit of others.

Fund Accounting

Q: What are the five types of governmental funds?
A: General, Special Revenue, Debt Service, Capital Projects, and Permanent Funds.
Q: How are revenues classified in fund financial statements?
A: Taxes, intergovernmental revenues, charges for services, and other revenues.
Q: What is the General Fund?
A: The primary operating fund of a government.
Q: What is a Permanent Fund?
A: A fund used to report resources restricted for the benefit of the government or its citizens.
Q: What is the focus of proprietary funds?
A: Economic resources measurement and accrual basis of accounting.

Budgetary Accounting

Q: What is the legal basis for governmental budgets?
A: State statutes or local ordinances.
Q: What are appropriations?
A: Authorized expenditure limits set in the budget.
Q: What is a budgetary comparison schedule?
A: A report comparing the approved budget to actual revenues and expenditures.
Q: How are encumbrances recorded?
A: As a reservation of fund balance.
Q: What is an interfund transfer?
A: Movement of resources between funds without an expectation of repayment.

Government-Wide Financial Statements

Q: What are the two government-wide financial statements?
A: Statement of Net Position and Statement of Activities.
Q: How are governmental activities presented in government-wide financial statements?
A: On the accrual basis, similar to private sector accounting.
Q: What is the purpose of the Statement of Activities?
A: To show how resources are allocated and the net cost of services.
Q: What are “program revenues”?
A: Revenues directly linked to specific programs, such as charges for services or grants.
Q: How is depreciation reported in government-wide statements?
A: As an expense allocated to the appropriate function.

Modified Accrual Accounting

Q: What is the primary focus of modified accrual accounting?
A: Current financial resources.
Q: When are revenues recognized under the modified accrual basis?
A: When they are measurable and available.
Q: How are expenditures recognized in modified accrual accounting?
A: When incurred, if they are expected to be paid from current financial resources.
Q: What types of liabilities are excluded from governmental fund balance sheets?
A: Long-term liabilities.
Q: What are deferred inflows and outflows of resources?
A: Items not yet recognized as revenues or expenses.

GASB Standards

Q: What does GASB stand for?
A: Governmental Accounting Standards Board.
Q: What is GASB Statement No. 34?
A: It establishes the basic financial reporting model for governments.
Q: What are the components of the Comprehensive Annual Financial Report (CAFR)?
A: Introductory section, financial section, and statistical section.
Q: What is the MD&A in government reporting?
A: Management’s Discussion and Analysis.
Q: What is the purpose of the Notes to Financial Statements?
A: To provide additional information and context for the financial data.

Capital Assets and Long-Term Liabilities

Q: How are capital assets reported in governmental funds?
A: They are not reported in the fund financial statements but appear in the government-wide statements.
Q: How are bond proceeds recorded in governmental funds?
A: As Other Financing Sources.
Q: What is the difference between operating and capital leases in government accounting?
A: Operating leases are treated as expenses, while capital leases are recognized as assets and liabilities.
Q: What is infrastructure reporting?
A: Recording and depreciating significant assets such as roads and bridges.
Q: How is long-term debt reported in government-wide statements?
A: As a liability.

Nonprofit Accounting

Q: What accounting basis do nonprofit organizations use?
A: Accrual basis.
Q: What are the three net asset classifications for nonprofits?
A: Without donor restrictions, with donor restrictions, and permanently restricted.
Q: How are contributions recognized in nonprofits?
A: As revenue in the period they are received or pledged.
Q: What is a Statement of Activities?
A: The nonprofit equivalent of an income statement.
Q: What is the purpose of a Statement of Functional Expenses?
A: To show expenses categorized by function and natural classification.

Revenue Recognition

Q: When are grants recognized?
A: When eligibility criteria are met.
Q: What is the difference between exchange and nonexchange transactions?
A: Exchange involves direct value; nonexchange includes donations or taxes.

Auditing

Q: What is the Single Audit Act?
A: A law requiring audits for entities spending $750,000+ in federal funds.
Q: What are internal controls?
A: Processes ensuring reliable reporting and compliance.

Performance and Accountability

Q: What are performance measures?
A: Metrics evaluating efficiency and effectiveness.
Q: Why is MD&A important?
A: It explains financial performance and future outlook.