B5 - M1 Budgetary and Activity Accounting

Question 1

How do you recognize revenue for derived “non exchange transactions”?

And When do you recognize revenue or deferred inflow?

Answer 1

Derived non-exchange transactions are recognized as revenue when they meet both time and modified accrual requirements.

Time requirements limit the revenue recognition for year-end to the revenue derived from sales prior to the year end.

Modified accrual criteria require that revenue be both measurable and available

When to recognize?

Dr. Accounts Receivable (when amounts are measureable - Ex. levied)
Cr. Revenue - when both criteria are met [time requirement (must be used or may ba used) and modified accrual requirement (measureable and available)]
Cr. Deferred inflow (when it fails revenue recognition requirement)

Question 2

What is the BAE BAE concept for Governmental accounting

Answer 2

BAE means “Budgetary, activity and Encumbrances” which represents the 3 different sets of books for governments or governmental funds

BAE BAE means you have to open the year (first BAE) and close the year (2nd BAE) and the recording is backwards (meaning you have to credit budgets and debit actuals and consider encumbrances/commitments

Budgetary - (opens the year) To Manage and control spending
Activity - (Actuals)
Encumbrances - Commitment to spend on future expense (reserving a portion of the budget

Question 3

Types of Governmental Funds? (GRASPP)

Answer 3

G General Fund

R Revenue (Special) Fund

a and

S Service (Debt) Fund

P Projects (Capital) Fund

P Permanent Fund

Question 4

What are the types of lease per Governmental accounting standards?

Answer 4

1. Short term lease - for lease less than a year w/o transfer of ownership (same as operating lease in commercial accounting
2. Contract that transfers ownership - Over a year term and/or with transfer of ownership (same as finance lease in commercial accounting)

Question 5

What is difference of propriety fund vs. governmental fund?

Answer 5

The main difference between governmental funds and proprietary funds is that governmental funds are used for traditional government functions, while proprietary funds are used for business-like activities

Proprietary funds, government-wide and fiduciary fund FS uses Full accrual basis/economic resources measurement focus accounting

Question 6

What are the key points to remember in Budgetary accounting?

Answer 6

1. BAE BAE - Budgets are reversed and Closed (Do not net with out Activities)
2. JE uses the SAME amounts that were recorded at the beginning PLUS/MINUS any amendments

Entry:

Dr. Estimated Revenue Control
Cr. Appropriations control
Dr/cr. Budgetary Control (the difference)

Then just reverse the original entry

Question 7

What are the key points to remember in Activity accounting?

Answer 7

1. There’s no “expenses” but “expenditures” is the correct term used in governmental fund
2. Revenue - measureable and available
3. Assets are expenditured
4. debts - Accounted as “Other financing sources”
5. Emphasizes flow of current Financial resources
6. No Matching principle
   7.

Question 8

Provide examples of “Non exchange revenues” and “exchange revenues” for governmental accounting

Answer 8

Non - exchange - entity gives value w/o directly receiving equal value in return. Examples are:
1. Taxes (sales, income)
2. Grants

Exchange - involves giving and receiving equal value
1. Water and Sewer utility charges
2. Parks and recreation fees

Question 9

What are the common issues/obstacles relating to Non exchange revenue?

Answer 9

1. Derived taxes (sales, income) - possible obstacle is the measurability
2. Imposed non exchange (fines, property taxes) - possible obstacle is availability (60 days collectible criteria) - (receivables are recorded when with “enforceable legal claim” (ex. when taxes are levied)

Question 10

Type of Non exchange revenues?

Answer 10

1. Government Mandated (high level of government like a state provides funds and MANDATES certain activities by another level of govt (ex. county) - Ex of activities - environmental clean up
2. Voluntary exchange - government receives resources and does NOT provide equal value (ex. Grant agreements). Example include when a an entity “requests” for funds for something and higher entity provides/grants

Question 11

What is the difference between the revenue recognition for derived vs. imposed

Answer 11

The ff are accrued as Receivable and revenue when time requirements are met

1. Imposed (billed) = Ex. RPT, Fines and penalties are revenue. Obstacle is availability
2. Derived revenue (ex. Sales and income tax) - Obstacle is measurability because you dont know the amount until received.

What if the revenue is collected/received in advance? The record as deferred inflow

Question 12

What are the methods for expense recognition on Governmental accounting?

Answer 12

1. Purchase method - Record expenditure when purchased. Record current asset and non spendable fund balance at YE for any items not used (still on hand). More like a periodic method
2. Consumption method - record assets when purchased. Record expenditure as consumed DURING the period (more like a perpetual method)

Question 13

What are the classification of Government Expenditures?

Answer 13

1. Function (ex. public safety, highways, education, welfare)
   or Program (Elderly, drug addiction)
2. Activity - specific activity/purpose
3. Character - Ex. Current expenditure, capital outlays, debt service, intergovernmental