Governmental Operating Statement Accounts: Budgetary Accounting

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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 collection—residential
____ 2.City clerk
____ 3.Supplies
____ 4.Transportation
____ 5.Health and welfare

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

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

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

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

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

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?

TRUE

Government-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.

TRUE

Program 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.

FALSE

As 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.

FALSE

Government-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.

TRUE

GASB 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.

TRUE

Depreciation 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.

FALSE

All 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.

FALSE

Expenditures is defined as all decreases in fund financial resources other than through other financing uses, such as interfund transfers out.

TRUE

Other financing sources include items such as interfund transfers and debt issue proceeds.  They increase fund balance when closed.

TRUE

These are the accounts listed in Illustration 3-3 as budgetary accounts.

FALSE

If 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.

TRUE

This is an appropriate description of an encumbrance. An appropriation is not expended, however, until goods or services are received.

FALSE

A 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.

FALSE

Available 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.

FALSE

The budgetary basis must be used both for the budget and actual columns to facilitate meaningful comparison.

TRUE

As shown in Illustration 3-8, available appropriations is calculated as appropriations less the sum of expenditures and open encumbrances.

FALSE

According to GASB standards, governmental funds must be reported using the current financial resources measurement focus and the modified accrual basis of accounting.

TRUE

This definition is consistent with the Chapter 3 discussion.

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 collection—residential
____ 2.City clerk
____ 3.Supplies
____ 4.Transportation
____ 5.Health and welfare

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

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

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

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

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

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.