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CPA - FAR > F8: Modified Accrual Accounting > Flashcards

F8: Modified Accrual Accounting Flashcards

1
Q

When are governmental fund revenues recorded?

A

When measurable and available - this means the collection period does not exceed 60 days after fiscal year end.

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2
Q

Governmental fund revenues often arise from non-xc transactions. What is a non-xc transaction and the types?

A

Non xc transactions are those in which government gives or receives value without directly giving or receiving equal value in return. (wheres exchange transactions are generally found in commercial accounting). The types:

1) Derived tax revenues - represent taxes imposed on or derived from exchange transactions, such as commercial sales (sales taxes), taxpayer income (income taxes), etc
2) Imposed non-xc revenues - represent taxes on non-xc transactions (fines) or wealth (property taxes)
3) government-mandated non-xc transactions - higher level of gov’t provides funds and mandates certain activities by another level of government (ex: county) such as environmental cleanup
4) voluntary non-xc transactions - government receives resources and does not provide equal value (ex: grant agreements)

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3
Q

What are encumbrances?

A

Open purchase orders represent an encumbrance or commitment of the available appropriations of a government.

DR Encumbrances
CR Budgetary Control

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4
Q

What is the JE when property taxes are recorded (levied)?

A

DR Property Taxes Receivable
CR Allowance for uncollectable property taxes
CR Revenues

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5
Q

What is the JE when encumbrance account is decreased?

A

DR Budgetary Control

CR Encumbrances

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6
Q

What is the JE when appropriations are recorded?

A

DR Budgetary Control

CR Appropriations

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7
Q

What is the JE when budget is recorded?

A

DR Estimated Revenues
CR Appropriations
CR Budgetary Control

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8
Q

What are the different classification of government expenditures?

A

1) Function - activities aimed at accomplishing a major service or regulatory responsibility (ex: public safety, highway, education)
2) Program - activities, operations, or organization units that are directed to the attainment of specific purposes or objectives (drug addiction, elderly programs)
3) Organizational Unit - may be responsible for carrying out different programs. ex: police and fire departments
4) Activity - provides data for calculating expenditures per unit of activity. Activity is a specific and distinguishable line of work performed by organizational unit.
5) Character - determining the basis of fiscal period the expenditure are to benefit : Current expenditures (benefit current period), capital outlays (current and future), debt service (prior, current, future) , intergovernmental (transfers)
6) Object classes - chart of accounts. classify according to types of items purchased or services obtained (ex: supplies, principal and interest payments, debt service)

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9
Q

What are expenditures?

A

Expenditures are decreases in net financial resources other than through interfund transfers. General fixed assets purchased with general fund resources should be recorded as expenditures in the general fund.

DR Expenditures
CR Vouchers Payable

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10
Q

how should expenditures of a governmental unit for insurance extending over more than one accounting period be allocated?

A

May be allocated between or among accounting periods or may be accounted for as expenditures of the period of acquisition. Non spendable current resources such as inventories or prepaids may be recorded using either the consumption or the purchases method.

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11
Q

What are sources of governmental resources?

A 
1) REVENUE
a - income and sales taxes
b - property and real estate taxes
c - fines and penalties
2) OTHER FINANCING SOURCES 
a - debt proceeds (bonds and notes)
b - interfund transfers
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12
Q

When is an encumbrance account debited?

A

When a purchase order is approved.

DR Encumbrances
CR Budgetary Control

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13
Q

When is a voucher payable recorded?

A

When goods are received.

DR Expenditures
CR Vouchers Payable
DR Budgetary Control
CR Encumbrances

The encumbrances entry is reversed.

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14
Q

What is the JE when taxpayers are billed for property taxes?

A

DR Property Taxes Receivable

CR Revenues

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15
Q

When is the estimated revenues control account balance eliminated?

A

When the budgetary accounts are closed as the estimated revenues controls account is CREATED when the budget is recorded

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16
Q

Encumbrances outstanding at YE in a state’s general fund would most likely be represented as ?

A

As a fund balance commitment in the general fund. Encumbrances are commitments or assignments of fund balance representing the amount of unperformed contracts for G&S. they do not represent expenditures or liabilities at YE.

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17
Q

When is revenue from property taxes recognized?

A

When measurable and available.

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18
Q

How are equipment purchases recorded?

A

equipment purchases would be classified as a capital outlay expenditure in the governmental fund F/S. general fund is a government fund that uses the current financial resources measurement focus and the modified accrual basis of accounting. under current financial resources measurement focus , all FA acquisitions are recorded as expenditures

19
Q

Do governmental funds record depreciation expense?

A

no because depreciation expense does not reflect the use of financial resources (governmental funds is the flow of financial resources)

20
Q

for governmental fund accounting, what are the three BAE accounting issues?

A 
B = budgetary accounting
A = activity emphasizes flow of current financial resources
E = encumbrances used to record purchase orders

book in the beg, close the same amount at the end.

21
Q

what is budgetary accounting used for?

A

control EXPENDITURES and to account for the levy of taxes sufficient to cover estimated expenditures.

balanced budget support inter period equity as an objective of public administration and fiscal accountability

budgets anticipate revenues and appropriates them for CURRENT operations.

budgetary accounts are ESTIMATED accounts.

22
Q

how many times are budgetary accounts posted during the year?

A

2 times - beg and end of the year.

23
Q

what is the JE in the beg of the year to record budgeted amounts for estimated revenue and approved expenditures (appropriations)?

A

the difference between estimated revenues and appropriations is called BUDGETARY CONTROL. – like the “equity” account.

DR estimated revenue control
DR estimated other financing sources (transfers from other funds)
DR budgetary control (negative/deficit)
CR appropriations controls (approved spending)
CR estimated other financing uses (transfers TO other funds)
CR budgetary control (positive/surplus)

24
Q

what is the JE at the end of the year to reverse and close out the budget?

A

JE to reverse the budget is always for the same dollar amount as original JE.

DR appropriations
DR estimated other financing sources (transfers TO other funds)
DR budgetary control (positive)
CR estimated revenue control
CR estimated other financing sources (transfers from other funds)
CR budgetary control (negative)

25
Q

what is “activity” in governmental accounting for?

A

emphasis is on the FLOW of current financial resources (very nearly CF), not on P+L. therefore, there is NO application of the matching principle as required in preparing accrual I/S

26
Q

in governmental accounting, when is revenue recorded?

A

recorded when measurable and available = collection period does NOT exceed 60 days after fiscal YE

27
Q

in governmental accounting, what are the expenditures?

A

operating and capital transactions = expenditures.

in addition, principal payment on debt = debt service expenditure.

capital purchases, debt services payments, and operating expenditures = current year expenditures.

ex: police cars and police officer’s salaries are both expenditures

NO capital asset in GRaSPP fund’s books, and there is no asset to depreciate for purposes of fund F/S

28
Q

how are capital assets accounted for governmental accounting?

A

no capital asset recorded in GRaSPP books, and no depreciation expense.

capital purchases are recorded in GOVNERMENT-WIDE governmental capital assets for government wide reporting: fixed asset purchases, bond issue costs, debt payments

29
Q

what is the JE to record purchase of capital item?

A

1)
DR expenditure - capital outlay
CR vouchers payable or cash

2) no liability for LT debt. principal payment on LT debt is recorded as expenditure:
DR expenditure - debt service
CR cash

30
Q

what are the alternatives for expenditure recognition for current fixed assets?

A

1) purchase method

2) consumption method

31
Q

what is the JE for buying item for purchase method?

A

DR expenditure

CR vouchers payable

32
Q

what is the JE for use of item for purchase method?

A

no entry

33
Q

what is the JE for item on-hand at YE ?

A

DR supplies inventory

CR nonspendable fund balance - inventory

34
Q

what is the JE for buying item for consumption method?

A

DR supplies inventory

CR vouchers payable

35
Q

what is JE for use of item for consumption method?

A

DR expenditure

CR supplies inventory

36
Q

what is JE for on hand item at year end for consumption method?

A

no entry

37
Q

related to expenditures for governmental accounting (expenditures is under “activity”), what are transfers between funds?

A

NOT an expenditure
transfers out represent the use of financial resources.
transfers represent budget transactions that move revenues recorded in one fund to defray expenditures incurred in another fund
MOVING $, not spending $

38
Q

what is the JE to record routine transfer between funds?

A

1) general fund
DR Other financing uses - transfers out (to debt service fund)
CR cash (from general fund)

2) debt service fund
DR cash
CR other financing sources - transfers in

39
Q

how it LT debt accounted for in governmental funds?

A

proceeds from LT debt = other financing sources
governmental funds do not record or carry the LT debt. rather, recorded on govt-wide /S
REPAYMENT of LT debts= EXPENDITURES of both principal and interest.

40
Q

what is the JE to record proceeds from LT debt?

A

DR Cash

CR other financing sources - bonds issued

41
Q

what is the JE to record payment of LT debt - principal and interest

A

DR expenditure - principal
DR expenditure - interest
CR cash

42
Q

where is “other financing sources” accounted for in the F/S?

A

in the statement of revenues, expenditures, and changes in fund balance (I/S). NOT in the B/S

43
Q

which fund pays the currently due interest and principal on LT debt?

A

the debt service fund.

as opposed to proprietary and fiduciary funds (SE-PAPI), they pay interest and principal directly.

CPA - FAR (8 decks)

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