FAR Chapter# 8

Question 1

FAR 8-1 - GOVERNMENT ACCOUNTING OVERVIEW | Name the primary authoritative body for GAAP for governmental entities.

Answer 1

Governmental Accounting Standards Board (GASB)

Question 2

FAR 8-2 - GOVERNMENT ACCOUNTING OVERVIEW | What are the three accounting themes addressed by governmental accounting?

Answer 2

Fund structure

Fund accounting

External reporting

Question 3

FAR 8-3 - GOVERNMENT ACCOUNTING OVERVIEW | Identify the major categories of funds used by state and local governmental units.

Answer 3

Governmental

Proprietary

Fiduciary

Question 4

FAR 8-4 - GOVERNMENT ACCOUNTING OVERVIEW | What terms define the manner and timing of transaction recognition in governmental fund accounting?

Answer 4

Fund accounting principles are defined by:

• Measurement Focus (how transactions are recognized)
• Basis of Accounting (when transactions are recognized)

Question 5

FAR 8-5 - GOVERNMENT ACCOUNTING OVERVIEW | What are the objectives of external reporting?

Answer 5

Operational accountability

Fiscal accountability

Question 6

FAR 8-6 - GOVERNMENT ACCOUNTING OVERVIEW | What types of external reports meet the accountability objectives of government?

Answer 6

Operational accountability: Government-wide financial statements

Fiscal accountability: Fund financial statements

Question 7

FAR 8-7 - GOVERNMENT ACCOUNTING OVERVIEW | Name each governmental fund type.

Answer 7

G - General Fund
R - Special Revenue Funds
a
S - Debt Service Funds
P - Capital Project Funds
P - Permanent Funds

Question 8

FAR 8-8 - GOVERNMENT ACCOUNTING OVERVIEW | What are the fund accounting principles applicable to governmental funds?

Answer 8

Measurement Focus: Current financial resources

Basis of Accounting: Modified accrual

Question 9

FAR 8-9 - GOVERNMENT ACCOUNTING OVERVIEW | What specialized accounti practices are followed by the governmental funds?

Answer 9

B - Budgetary Accounting
A - Activity (Actual) Accounting
E - Encumbrance Accounting

Question 10

FAR 8-10 - GOVERNMENT ACCOUNTING OVERVIEW | Name and define the five classifications of fund balances used by governmental fund types

Answer 10

Non-spendable: Resources that are not available to be spent (e.g., inventories).

Restricted: Resources that are constitutionally, legislatively, or otherwise externally limited as to use.

Committed: Resources that are internally limited as to use by the governments highest level of decision-making authority.

Assigned: Resources intended to be used by the government for specific purposes whose constraints do not rise to the level of restricted or committed.

Unassigned: Residual classifciation of equity that represents resources that are the least limited as to use.

Question 11

FAR 8-11 - GOVERNMENT ACCOUNTING OVERVIEW | Name each proprietary fund type.

Answer 11

Internal Service Funds

Enterprise Funds

Question 12

FAR 8-12 - GOVERNMENT ACCOUNTING OVERVIEW | What are the fund accounting principles applicable to proprietary funds.

Answer 12

Measurement Focus: Economic resources

Basis of Accounting: Full accrual

Question 13

FAR 8-13 - GOVERNMENT ACCOUNTING OVERVIEW | Name each fiduciary fund type.

Answer 13

P - Pension Trust Funds
A - Agency Funds
P - Private Purpose Trust Funds
I - Investment Trust Funds

Question 14

FAR 8-14 - GOVERNMENT ACCOUNTING OVERVIEW | What are the fund accounting principles applicable to fiduciary funds?

Answer 14

Measurement Focus: Economic resources

Basis of Accounting: Full accrual

Question 15

FAR 8-15 - GOVERNMENT ACCOUNTING OVERVIEW | Distinguish between alternative measurement focuses.

Answer 15

Current Financial Resources (GRaSPP)

• No fixed assets are recorded; capital outlays displayed as expenditures
• No depreciation
• No noncurrent liabilities are recorded; debt proceeds displayed as resource inflows
• Principal payments displayed as an expenditure
• Premiums and discounts on debt are not amortized; they are included as an increase ofr decrease of debt proceeds

Economic Resources (SE PAPI)

• Fixed assets are recoreded
• Noncurrent liabilities are recorded

Question 16

FAR 8-16 - MODIFIED ACCRUAL ACCOUNTING | Define modified accrual and list the funds that use it as a basis of accounting.

Answer 16

Modified accrual:

Revenues should be recognized when measurable and available: expenditures are generally (with the exception of interest expenditures) recognized when fund liability is incured.

Funds using modified accrual basis: 
G - General Fund
R - Special Revenue Funds
S - Debt Service Funds
P - Capital Project Funds
P - Permanent Funds

Question 17

FAR 8-17 - MODIFIED ACCRUAL ACCOUNTING | What do the terms “measurable” and “available” mean in the context of the modified accrual basis of revenue accounting?

Answer 17

Measurable means reasonably estimable or of a known determined amount.

Available means collectible within (generally) 60 days of year-end.

Question 18

FAR 8-18 - MODIFIED ACCRUAL ACCOUNTING | When are revenues recorded in governmental funds?

Answer 18

Governmental funds record revenues when measurable and available. This concept applies to accrual of different types of revenues depending on the character.

Accrue when:
Billed/Recorded (Imposed non-exchange transactions)
Real estate taxes (due)

Received (Derived non-exchange transactions)
Income taxes
Sales taxes

Earned (Government mandated and voluntary non-exchange transactions)
Real estate taxes paid in advance
Restricted grants

Question 19

FAR 8-19 - MODIFIED ACCRUAL ACCOUNTING | Define the different classifications of expenditures.

Answer 19

Expenditure classification include:

• Function (e.g., public safety)
• Organizational unit (police, fire, etc)
• Activity (drug enforcement, highway safety patrol)
• Character (current, capital outlay, debt service)
• Object (personal services, building occupancy, insurance)

Question 20

FAR 8-20 - MODIFIED ACCRUAL ACCOUNTING | What is the journal entry to record the annual budget?

Answer 20

Dr. Estimated revenues
Cr. Appropriations
Cr. Unreserved fund balance

Actual expenditures have a natural debit balance. Appropriations to which those expenditures are compared have a natural credit balance. Computation of unexpended appropriations is a pure arithmetic sum of these two accounts.

Question 21

FAR 8-21 - MODIFIED ACCRUAL ACCOUNTING | Define encumberance and give the journal entry to recognize a purchase order on supplies.

Answer 21

Encumberance: A commitment related to an underperformed contract for goods or services (generally an open purchase order).

  Dr.     Encumbrance
  Cr.            Reserve for encumbrance

Encumbrances have a natural debit balance. Appropriations, to which those encumbrancves are compared, have a natural credit balance. Computation of unencumbered appropropriations is a pure arithmetic sum of these two accounts. Computation of unexpected and unencumbered appropriations is the sume of the three accounts: Appropriations (credit), Expenditures (debit), and Encumbrances (debit).

Question 22

FAR 8-22 - MODIFIED ACCRUAL ACCOUNTING | What journal entries are made to record the liabilities incurred associated with previously encumbered funds?

Answer 22

Expenditure of previously encumbered funds results in the following entries:

Dr. Expenditure
Cr. Accounts Payable

Dr. Reserve for Encumbrance
Cr. Encumbrance

The entries serve to reverse the full effect of the encumbrance entry and record the full amount of the expenditure (BAE - BAE)

Question 23

FAR 8-23 - MODIFIED ACCRUAL ACCOUNTING | When are budgetary, actual, or encumberance entries combined?

Answer 23

Never

Budgetary, actual, and encumberance transactions are always segregated on the books, do not net:

B B
A A
E E

At the beginning of the year: Book Budget
Througout the year: Book actuals, book encumberances
At year end: Close the budget, close the acutals, close the encumbrances

Question 24

FAR 8-24 - MODIFIED ACCRUAL ACCOUNTING | What are the colsing budget, activity and encumberance journal entries?

Answer 24

Activity, Budget (Deficit), Encumberance

Dr.  Revenue
Dr.  Unreserved fund balance
Cr.        Expenditures
Dr.  Appropriations
Cr.        Estimated revenues
Cr.        Budgetary fund balance
Dr.  Reserve for encumberance
Cr.         Encumberances

At the beginning of the next year, the above encumberance entry is reversed. The entry will keep the Reserve for Encumberance intact in order to account for resources spent in the next year that would have been budgeted in the current year. Reserves are recorded purely for internal purposes and are not displayed as “reserves” for external reporting.

Question 25

FAR 8-25 - MODIFIED ACCRUAL ACCOUNTING | Journal entry to recognize supplies remaining at year-end.

Answer 25

Purchase Method Dr. Supplies on hand inventory Cr. Fund balance , non-spendable This journal entry indicates that these supplies are not available spendable resources. Consumption method: No entry may be needed as supplies were debited to inventory and then recognized as expenditures as the were used. A corresponding entry changing the related non-spendabel classification of fund balance should have been done as each use of inventory was recorded.

Question 26

FAR 8-26 - GOVERNMENTAL FUNDS | What is the purpose of the general fund?

Answer 26

The general fund is created at the beginning of the governmental unit and it exists throughout the life of that unit. The general fund accounts for the general activities of a governmental unit that are not accounted for by any other fund. The general fund is always a major fund.

Question 27

FAR 8-27 - GOVERNMENTAL FUNDS | What are the typical revenue sources of the general fund?

Answer 27

Taxes (property taxes) Public safety and regulations (fines, inspection fees, etc.) Intergovernmental (shared revenues) Charges for services Other revenues (interest income)

Question 28

FAR 8-28 - GOVERNMENTAL FUNDS | What is the purpose of the special revenue fund?

Answer 28

Special revenue funds account for revenues and expenditures that are restricted or committed for specific purposes. The life of a special revenue fund may be limited or unlimited.

Question 29

FAR 8-29 - GOVERNMENTAL FUNDS | What are the typical revenue sources of a special revenue fund?

Answer 29

Intergovernmental revenues (e.g., sales taxes or gasoline taxes restricted for use) Intergovernmental revenues (e.g., grants and other financial assistance provided for a specific purpose) Specific fees (e.g., parking fees, museum admission fees, etc) Seizure of assets surrendered as a result of illegal acts (e.g., Forfeiture Act)

Question 30

FAR 8-30 - GOVERNMENTAL FUNDS | What is the purpose of the debt service fund?

Answer 30

The debt service fund is created to account fo rthe accumulation of restricted, committed, or assigned resources (cash and investments) for the payment of currently due interest and principal on a long term general obligation debt. Debt service funds pay GRSPP debt. Debt service funds do not pay SE PAPI debt.

Question 31

FAR 8-31 - GOVERNMENTAL FUNDS | What are the typical components of revenue and other financing source classifications for debt service funds?

Answer 31

Revenues - Investment income - Taxes levied specifically for debt repayment Other financing sources - Transfers from other funds to meet bond indenture requirements - Debt proceeds associated with refunding debt

Question 32

FAR 8-32 - GOVERNMENTAL FUNDS | What is the purpose of the capital project fund?

Answer 32

Capital projects funds are established to account for resources restricted, committed, or assigned for the construction or purchase or leasing of significant fixed assets used by the governmental (GRSPP) funds. Capital projects funds are not used for proprietary (SE) or fiduciary (PAPI) funds.

Question 33

FAR 8-33 - GOVERNMENTAL FUNDS | What are typical components of revenue and other financing source classifications for capital project funds?

Answer 33

Revenues - Investment earnings - Tax revenues specifically levied to fund capital improvement Other financing sources - Debt proceeds used to fund construction - Transfers from other funds

Question 34

FAR 8-34 - GOVERNMENTAL FUNDS | What is the purpose of the permanent fund?

Answer 34

Permanent funds are used to report resources that are legally restricted to the extent that only earnings and not principal may be used for the purposes that suppor the reporting government's programs.

Question 35

FAR 8-35 - GOVERNMENTAL FUNDS | What are the required fund financial statements for the individual governmental fund types?

Answer 35

GRSPP Funds require: - Balance Sheet - Statement of Revenues, Expenditures, and Change in Fund Balance

Question 36

FAR 8-36 - PROPRIETARY FUNDS | What is the purpose of the internal service fund?

Answer 36

Internal service funds are established to finance and account for services and supplies provided exclusively to other departments within a governmental unit or to other governmental units, typically on a cost-reimbursement basis. Major fund reporting requirements do not apply to internal service funds.

Question 37

FAR 8-37 - PROPRIETARY FUNDS | What are typical revenue sources for internal service funds?

Answer 37

Operating Revenues Charges for services provided to other funds. (These charges are NOT transfers or other financing sources.) Nonoperating Revenues - Investment income - Grant revenues

Question 38

FAR 8-38 - PROPRIETARY FUNDS | What is the purpose of the enterprise fund?

Answer 38

Enterprise funds are used for operations that are financed and operated in a manner similar to private business enterprises. Activities should be reported in enterprise funds if the activity is funded by debt secured by a pledge of net revenue from fees and charges, laws required that activity fees be recovered through fees, or fees are designed to recover costs.

Question 39

FAR 8-39 - PROPRIETARY FUNDS | What are typcial revenue sources for enterprise funds?

Answer 39

Operating Revenues Charges for services (utility fees, patient fees, tuition, other exchange type fees) Nonoperating Revenues - Shared / grant revenues - Investment income

Question 40

FAR 8-40 - PROPRIETARY FUNDS | What are the required fund financial statements for the individual proprietary fund types?

Answer 40

SE funds require: - Statement of Net Assets - Statement of Revenues, Expenses, and Changes in Fund Net Assets - Statement of Cash Flows

Question 41

FAR 8-41 - FIDUCIARY FUNDS | What is the purpose of the pension trust fund?

Answer 41

Pension (and other employee benefit) trust funds account for government-sponsored defined benefit and defined contribution plans and other employee benefits, such as postretirement health care benefits.

Question 42

FAR 8-42 - FIDUCIARY FUNDS | What are the unique note disclosures and required supplemental information reporting associated with pension funds?

Answer 42

Note Disclosures Plan description Contributions and reserves Risk concentratrations Required Supplementary Information Schedule of funding progress (last six years) Schedule of employer contributions (last six years) Notes to support the schedules

Question 43

FAR 8-43 - FIDUCIARY FUNDS | What is the purpose of the agency trust fund?

Answer 43

An agency fund collects cash to be held temporarily for an authorized recipient to whom it later will be disbursed. This recipient may be another fund or some individual or fund or even government outside of the reporting government.

Question 44

FAR 8-44 - FIDUCIARY FUNDS | What is unique about agency fund revenues and expenses?

Answer 44

Agency funds do not report revenues and expenses, only assets and liabilities.

Question 45

FAR 8-45 - FIDUCIARY FUNDS | What is the purpose of the private purpose trust fund?

Answer 45

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, and other governments.

Question 46

FAR 8-46 - FIDUCIARY FUNDS | What is the purpose of the investment trust fund?

Answer 46

Investment trust funds account for external investment pools sponsored by a governmental entity. Example: A state may act as the investment agent for counties and cities. The investments "external" to state government, those administered on behalf of the counties and cities, are reported in an investment trust fund.

Question 47

FAR 8-47 - FIDUCIARY FUNDS | What are the required fund financial statements for the individual fiduciary fund types?

Answer 47

Most PAPI funds require: - Statement of Fiduciary Net Assets - Statement of Changes in Fiduciary Net Assets (Note: Agency funds [the "A" in PAPI] do not require this statement)