F9 - Governmental Accounting: Part 2 Flashcards
M1 - Encumbrances and Other Transactions
What amounts are included in a general fund’s encumbrance account?
Only purchase order amounts.
M1 - Encumbrances and Other Transactions
A purchase order is a binding document and thus is recorded when issued.
Example JE when a PO is issued:
DR. Encumbrances
CR. Budgetary control
M1 - Encumbrances and Other Transactions
Encumbrance accounting is used in
Governmental (GRaSPP) funds
is NOT used in the proprietary (SE) or fiduciary (CIPPOE) funds
M1 - Encumbrances and Other Transactions
When goods are received that had been approved for purchase, the:
-
Encumbrances account should be decreased
- Expenditures account should be increased
- Receipt of goods prior to payment results in an accrual of the expenditure
M1 - Encumbrances and Other Transactions
The issuance of purchase orders or the signing of contracts represents a commitment to expend resources.
Such a commitment is recorded as an encumbrance and a credit to budgetary control.
M1 - Encumbrances and Other Transactions
The encumbrance account of a governmental unit is debited when
A purchase order is approved
Budgetary control would be credited
DR. Encumbrances
CR. Budgetary control
M1 - Encumbrances and Other Transactions
The budgetary control account of a governmental-type fund is increased when:
A purchase order is approved
DR. Encumbrances
CR. Budgetary control
M1 - Encumbrances and Other Transactions
Upon receipt of an invoice for a previously encumbered estimated cost of supplies, a special revenue fund will:
Reversal
Debit the budgetary control account
M1 - Encumbrances and Other Transactions
Example (model JEs):
When a purchase order is issued:
DR. Encumbrances $5,000
CR. Budgetary control $5,000
When supplies and invoices are received:
DR. Budgetary control $5,000
CR. Encumbrances $5,000
DR. Expenditures (actual) $4,950
CR. Vouchers payable $4,950
M1 - Encumbrances and Other Transactions
A budgetary control (open purchase orders) account balance in excess of a balance of encumbrances indicates:
A recording error
M1 - Encumbrances and Other Transactions
Encumbrances
are commitments or assignments of fund balance representing the amount of unperformed contracts for goods or services.
- Encumbrances at year-end do NOT constitute expenditures or liabilities. Therefore, at year-end encumbrances are reclassified as a commitment of assignment of fund balance that is NOT appropriable for expenditure.
M1 - Encumbrances and Other Transactions
Assets associated with unavailable revenues should be recorded by crediting deferred inflows of resources.
DR. Accounts Receivable
CR. Deferred inflows of resources
M1 - Encumbrances and Other Transactions
Although accounts are not netted in the accounting records, the available appropriation would be computed as the difference between the amounts budgets (appropriated) and the total amounts either encumbered or expended.
Budgeted appropriations $10,000
Actual expenditures ($5,000)
Encumbrances ($2,000)
Available appropriations
M1 - Encumbrances and Other Transactions
Appropriation
is a budgetary account.
this account represents the governmental unit’s approved spending.
M1 - Encumbrances and Other Transactions
Expenditures
represent the actual incurring of bills, whether paid in cash or recorded as vouchers payable.
M1 - Encumbrances and Other Transactions
Encumbrances
are commited or assigned amounts within budgetary control for open purchase orders.
M1 - Encumbrances and Other Transactions
Vouchers payable
represent expenditures not yet paid and are included as a component of the expenditure amount.
M1 - Encumbrances and Other Transactions
The only fund that should show a positive amount in its unassigned fund balance classification would be the:
General fund
Unassigned fund balance is the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and has not been restricted, commited or assigned to specific purposes within the general fund.
M1 - Encumbrances and Other Transactions
Interfund transfers
- are recorded as other financing sources (uses) rather than revenues (expenditures) for governmental funds.
- They are recorded simply as interfund transfers for proprietary funds. Although these transfers are not recorded as revenues or expenditures, they do affect both funds’ expendable resources and, therefore, affect the results of operations fot buth funds.
M1 - Encumbrances and Other Transactions
Transfers received by a governmental-type fund should be reported in the Statement of Revenues, Expenditures, and Changes in Fund Balance as an
Other financing source.
M1 - Encumbrances and Other Transactions
Reciprocal interfund activity
includes interfund loans and interfund services provided and used.
M1 - Encumbrances and Other Transactions
Nonreciprocal transfers
include interfund transfers (which are displayed as either other financing sources or uses on the governmental fund statements or purely as transfers in proprietary fund financial statements) and interfund reimbursements (which are NOT shown on the face of the financial statements).
M1 - Encumbrances and Other Transactions
Property taxes
- property taxes receivable are recognized in the period in which the taxes are levied.
- When property taxes are either recognized as receivable in advance or collected in advance of the year in which they are levied, deferred inflows of resources are recorded.
M1 - Encumbrances and Other Transactions
Restricted fund balances
represent resources whose use has been limited by external sources such as creditors (e.g. debt covenants), contributors, other governments, laws, constitutional provisions, or enabling legislation.
M1 - Encumbrances and Other Transactions
The general fund is most likely to have a fund balance classified as non-spendable inventory of supplies
General fund will normally have supplies on hand at the end of the period.
M1 - Encumbrances and Other Transactions
Designations of an enterprise fund’s net position for future equipment replacement would be displayed as unrestricted net position.
Net position will include classifications for investment in capital assets net of related debts, amounts restricted by external sources and unrestriced components.
Internal designations are classified as unrestricted.
M1 - Encumbrances and Other Transactions
Inventories are considered non-spendable.
Non-spendable fund balances represent resources in a form that cannot be spent (inventories or prepaid expenditures) or are legally or contractually required to remain whole (permanent fund principal).
M1 - Encumbrances and Other Transactions
If expenditures incurred for specific purposes exceed the amounts restricted, commited or unassigned to those purposes, it may be necessary to report a
negative unassigned fund balance.
M1 - Encumbrances and Other Transactions
The term used to identify the equity section in proprietary funds is “net position”.
An enterprise fund is a proprietary fund and it will report net position as fund equity.
M2 - Governmental Funds Financial Statements: Part 1
debt service funds
accounts for the accumulation of resources for, and the payment of, general long-term liability principal and interest.
- The restricted portion of the special tax is for the repayment of the long-term debt of the county’s capital projects, which would be services from the debt service fund.
M2 - Governmental Funds Financial Statements: Part 1
The capital projects fund
is a governmental fund for the acquisition or construction of capital assets.
M2 - Governmental Funds Financial Statements: Part 1
Interest expenditures
- should be recorded when legally payable per the bond agreement.
- should NOT be accrued between payment dates.
M2 - Governmental Funds Financial Statements: Part 1
The transfer to a debt service fund
is a transfer out, which will fall under “other financing uses” on the statement of revenues, expenditures, and changes in fund balances.
M2 - Governmental Funds Financial Statements: Part 1
Revenues that are legally restricted to expenditures for specified purposes, including gasoline taxes to finance road repairs, should be accounted for in the
special revenue funds
M3 - Governmental Funds Financial Statements: Part 2
Capital projects
are established for the construction, purchase, or leasing of significant fixed assets used for general governmental activities.
M3 - Governmental Funds Financial Statements: Part 2
Bond anticipation notes
are current liabilities if the entity does not have the ability to refinance as a noncurrent obligation.
M3 - Governmental Funds Financial Statements: Part 2
Capital projects funds
are generally funded by proceeds that are to be used to complete a particular project.
The project may also be purely funded by a transfer from another fund.
Proceeds and transfers are reported as other financing sources and uses.
M3 - Governmental Funds Financial Statements: Part 2
Land and other real estate held as investments by endowments in a government’s permanent fund should be reported at:
Fair value
- In a permanent funs, investments are typically required to be accounted for at fair value.
M4 - Proprietary Funds Financial Statements
Billings for transportation services provided to other governmental units
are considered quasi-external transactions and are treated as revenues by the internal service fund.
Example JE:
DR. Dure from other funds
CR. Operating revenues
M4 - Proprietary Funds Financial Statements
An enterprise fund may be used to account for the provision of goods and services that are financed mainly by user charges.
Examples are:
- State-operated lottery
- State-operated hospital
M4 - Proprietary Funds Financial Statements
Municipal solid waste landfills (MSWLF) owners and operators
are required to incur a variety of costs to provide for protection of the environment both during the period of landfill operations and during the postclosure period.
M4 - Proprietary Funds Financial Statements
What governmental unit records depreciation?
Internal service fund
M4 - Proprietary Funds Financial Statements
The orientation of accounting and reporting for all proprietary funds of governmental unit is?
Income determination
Accounting and reporting for proprietary funds is similar to accounting and reporting for a business enterprise. Thus, the full accrual basis is used and the measurement focus is on net income and capital maintenance.
M4 - Proprietary Funds Financial Statements
Internal service funds
accoutns for the providing of goods or services by one department to other departments on a cost-reimbursement basis.
Example:
- municipal motor pools
M4 - Proprietary Funds Financial Statements
Due from other funds appears on the balance sheet.
They are NOT a component of changes in net income.
M4 - Proprietary Funds Financial Statements
Activities are required to be reported as enterprise funds if any one of the following criteria are met:
- The activity is financed with debt that is solely secured by a pledge of the net revenue from fees and charges.
- Laws and regulations require that the cost of providing services be recovered through fees
- The pricing policies of the activity establish fees and charges designed to recover its costs.
M4 - Proprietary Funds Financial Statements
Enterprise fund
is used to account for operations financed and operated in a manner similar to a private business enterprise.
- This fund is also used for governmental facilities and services intended to be primarily (>50%) self-supported by user charges.
M4 - Proprietary Funds Financial Statements
Depreciation expense is NOT recorded in the governmental funds, but is recorded in the proprietary funds.
M4 - Proprietary Funds Financial Statements
Shared revenues are revenues levied by one government but shared on a predetermined basis with another government.
Shared revenues received by a proprietary fund should be recorded as non-operating revenue if received for operations or if received for either operations or capital expenditures at the discretion of the receipient governmental unit.
M4 - Proprietary Funds Financial Statements
Receiving state appropriations represents a non-exchange transaction and will be treated as nonoperating revenues.
Operating grants and subsidies represent non-exchange transactions that are not derived from operations. They are treated as nonoperating revenues.
M5 - Fiduciary Funds Financial Statements
The debt service transactions of a special assessment issue for which the government is not obligated in any manner should
be reproted in a custodial fund, rather than a debt service fund, to reflect the fact that the government’s duties are limited to collecting and remitting funds without administrative involvement for the assessed property owners and bondholders.
M5 - Fiduciary Funds Financial Statements
Cash conduit arrangements (e.g., pass-through grants), in which the government receives and disburses resources without monitoring responsibilities, are reported in..
custodial funds
M5 - Fiduciary Funds Financial Statements
When the government unit is NOT obligated in any manner for the special assessment debt, it acts as
custodian of the resources related to the special assessment.
In this case, a custodial fund should be used to report the debt service transactions
M5 - Fiduciary Funds Financial Statements
Custodial funds
are used to account for assets (such as taxes collected) held by a governmental unit (such as a county) acting as a collection agent in a fiduciary capacity for another governmental unit (such as a school district).
M5 - Fiduciary Funds Financial Statements
Investment pools operated by a government that account for the investments of other entities would display those investments in an
investment trust fund
- The government’s own investment, invested in its own investment trust fund, would treat the trust fund as if it were an outside trustee.
- As a result, the government’s own investments would be treated as assets of the investing fund itself (just as if it were with an external broker).
M5 - Fiduciary Funds Financial Statements
For an investment trust fund, the required financial statements are:
- statement of fiduciary net position (balance sheet)
- statement of changes in fiduciary net position (income statement).
M5 - Fiduciary Funds Financial Statements
The private purpose trust fund is the designated fund for reporting all other trust arrangements under which principal and income are for the benefit of one of the following:
- Specific individuals
- Private organizations
- Other governments
M5 - Fiduciary Funds Financial Statements
IRC Section 457, deferred compensation plans for other than proprietary fund employees, should be reported
in a pension (and other employee benefit) trust fund.
M5 - Fiduciary Funds Financial Statements
Routine employer contributions from the general fund to a pension trust fund
would be accounted for as an expenditure in the general fund
