G&NP Chapter 4

Question 1

Budget provisions in government constitutions and laws are designed to ensure that government revenues and expenditures are properly…

Answer 1

planned, authorized, controlled, evaluated and reported to the citizenry, legislature and creditors.

Question 2

Stringent requirements are placed on governmental budgeting because

Answer 2

1) they are the only organizations in our society with the power to levy taxes
2) they provide services that are crucial to our well being
3) they function in a delicate legislative-exective-judicial “checks and balances environment

Question 3

Budgeting is

Answer 3

the process of allocating scarce resources among unlimited demands

Question 4

A legally enacted budget is

Answer 4

an official dollars-and-cents plan of operation for a specific period of time

Question 5

Approved budgets are

Answer 5

management plans in both businesses and governments, but legally enacted budgets are also laws in governments

Question 6

Appropriations are

Answer 6

legal authorizations to incur expenditures for various purposes that also limit legal authorization for incurring expenditures for specific purposes

Question 7

Up-to-date information is needed to assist government officials:

Answer 7

1) avoid unintentional over expenditure of appropriation authority
2) determine whether revenues are achieving budgeted levels
3) know if they must deal with an unexpected shortage of resources

Question 8

GASB Basic Principles for budgets

Answer 8

1) An annual budget(s) be adopted by every governmental unit
2) The accounting system provide the basis for appropriate budgetary control
3) Budgetary comparison statements or schedules be presented as basic financial statements or required supplementary information (RS) for
a) the General Fund
b) each major Special Revenue Fund that has a legally adopted annual budget

Question 9

To maintain and demonstrate budgetary accountability:

Answer 9

1) The accounts should be maintained during the year on the budgetary basis
2) Encumbrances are recorded to track the estimated cost to complete encumbered transactions
3) Accounts should be established in the Revenues Subsidiary Ledger and Expenditures Subsidiary Ledger at the level of detail (at least) of the adopted budget
4) Any interfund transfers or other fund balances should be recorded in appropriately titled General Ledger accounts, but should not be recorded in subsidiary ledger accounts because only revenues and expenditures are subject to formal budgetary accounting control procedures

Question 10

Some governments use a Budgetary Fund Balance account to

Answer 10

record the budgeted increase or decrease in fund balance for the year

Question 11

Each subsidiary ledger must be modified to add

Answer 11

the detailed budget information

Question 12

For the Revenues Ledger to be used effectively for budgetary control, each of the six subsidiary ledger accounts must include:

Answer 12

1) the legally adopted budgeted amounts of the specific type of revenues recorded in each subsidiary ledger account
2) the actual amount of revenues

Question 13

The sum of the balances of the various Revenues Ledger accounts must equal

Answer 13

the difference between the Estimated Revenues account and the Revenues account in the General Ledger

Question 14

Information recorded for each Expenditures Ledger account:

Answer 14

1) Appropriations
2) Expenditures
3) Encumbrances
4) Unencumbered Balance (Appropriations less Expenditures less Encumbrances)

Question 15

Encumbrances

Answer 15

the estimated cost of unfilled orders and unperformed contracts

Question 16

The balance of each Expenditures Ledger account is equal to

Answer 16

Appropriations less Expenditures less Encumbrances

Question 17

appropriations

Answer 17

Legally established authority to spend that are created following specific guidelines

Question 18

If the revenue estimate is increased during the period…

Answer 18

the increase would be debited to Estimated Revenues and credited to Budgetary Funds Balance

Question 19

Encumbrances are recorded…

Answer 19

in total in the General Ledger and in detail in the Expenditures Ledger, when purchase orders are issued or contracts are signed for goods and services.

Question 20

Comparing appropriations with the sum of expenditures and encumbrances shows

Answer 20

the amount of uncommitted (unencumbered) appropriations available for expenditure

Question 21

the accounting upon receipt of encumbered goods or services is…

Answer 21

reverse the encumbrance entry and record the actual expenditure

Question 22

the only entries that must be added or modified to maintain budgetary accountability during the fiscal year are

Answer 22

1) the budgetary entry to record an adoption (and revisions) of the budget
2) Entries recording encumbrances for orders placed or contracts approved
3) entries to reduce encumbrances upon receipt of goods ordered or contractual services

Question 23

Subsidiary ledger entries are required only for entries that affect one of the corresponding General Ledger control accounts

Answer 23

Estimated Revenues
Revenues
Appropriations
Expenditures
Encumbrances

Question 24

Interim budgetary reports are widely used to

Answer 24

help governing bodies monitor, evaluate and manage a government’s operations during a fiscal year

Question 25

The GASB requires annual budgetary reporting for the General Fund and each major Special Revenue Fund either as

Answer 25

basic financial statements (BFS) or as required supplementary information (RSI)

Question 26

Governments maintain their accounts on the budgetary basis during the year, for budgetary control and for interim and annual budgetary reporting purposes, then…

Answer 26

adjust the accounts to the GAAP basis at year end for the annual GAAP based reporting purposes

Question 27

Encumbrances Method

Answer 27

consider encumbrances outstanding at year end to be the equivalent of expenditures for budgetary purposes

Question 28

Interim revenues statements typically include, as a minimum, data from the Revenues Subsidiary Ledger accounts

Answer 28

1) the revenues recognized to date
2) the estimated revenues for the year
3) the difference between the two

Question 29

Interim expenditures statements typically include, as a minimum, data drawn from the Expenditures Subsidiary Ledger at the interim statement date on

Answer 29

1) Appropriations for the year
2) Expenditures to date
3) Encumbrances outstanding at the interim date
4) The unencumbered balance of each appropriation

Question 30

A third statement or schedule required for the General Fund and certain Special Revenue Funds, can be presented as either (1) a basic financial statement (audited) or (2) required supplementary information (unaudited)

Answer 30

The Budgetary Comparison Statement

Question 31

The Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - is prepared on the budgetary basis, which often differs from GAAP so it’s often called the

Answer 31

“budgetary comparison statement”
or
“budgetary statement”

Question 32

If the budget is prepared on a basis other than GAAP

Answer 32

both the budget data and the actual data should be presented on the budgetary basis, and the notes should

1) explain the non-GAAP budgetary basis employed and
2) reconcile the budgetary amounts with the GAAP amounts

Question 33

The budgetary basis of account must be explained clearly and the government must present a reconciliation between the actual data reported in the budgetary statement and the amounts reported in the GAAP financial statements. This reconciliation may explain either

Answer 33

1) the differences between the net changes in fund balance reported in the two statements
or
2) the differences between the ending fund balance presented in the GAAP operating statement and the ending budgetary fund balance reported in the budgetary comparison statement

Question 34

The accounting system then helps the administers

Answer 34

1) control the activities authorized to finance and carry out the plans
and
2) prepare the statements that permit comparison of actual operations with the budget and evaluation of variances

Question 35

Three key budgetary phases and functions

Answer 35

1) planning
2) control
3) evaluation

Question 36

Allotments

Answer 36

ration expenditure authority to subordinate agencies or departments in terms of monthly or quarterly expenditure ceilings

Question 37

Budgets may be classified as:

Answer 37

1) Capital or current
2) Tentative or enacted
3) General or special
4) Fixed or flexible
5) Executive or legislative

Question 38

Long term budgetary plans covering2 to 6 years

Answer 38

capital programs

Question 39

General Budgets

Answer 39

The budgets of general government activities - commonly financed through the General Fund, Special Revenue Funds, and Debt Service Funds

Question 40

A budget prepared for anything other than general governmental activities

Answer 40

Special Budget

ex: Capital Projects Fund, Internal Service Funds, Enterprise Funds

Question 41

Fixed Budgets

Answer 41

Those in which appropriations are for a specific dollar amount of expenditures or expenses.

Question 42

Flexible Budgets

Answer 42

Fixed per unit of goods or services, but variable in total according to demand for the good or service

Question 43

Budgets are sometimes categorized by the preparer such as:

Answer 43

1) executive budget
2) legislative budget
3) joint budget
4) committee budget

Question 44

After estimating the fund balance to be available at the beginning of the upcoming budget year, the budget officer must obtain preliminary estimates of…

Answer 44

1) 1) The revenues expected from all revenue sources at current rates of taxes, fees, and other charges.
2) Any other sources of appropriable resources.
The fund balance needed at the end of the upcoming budget year for carryover to the next year.

Question 45

Executive Budget

Answer 45

A compromise between (a) the expenditure authority requested and (b) the expendable financial resources estimated to be available to finance the expenditure requests

Question 46

The most common approaches to expenditure budgeting

Answer 46

1. Object-of-expenditure
2. Performance
3. Program and planning-program budgeting (PPB)
4. Zero-base budgeting (ZBB)

Question 47

Often refereed to as the line-item object of expenditure approach or the traditional approach, has an expenditure control orientation

Answer 47

Object of Expenditure Approach

Question 48

Essential Elements of Object of Expenditure Approach

Answer 48

1) Subordinate agencies submit detailed budget requests to the chief executive in terms of the types of expenditures to be made. These request include the number of people to be hired in each specified position and salary level and the specific goods or services to be purchased during the upcoming period.
2) The chief executive compiles and modifies the agency budget requests and submits an overall request for the organization to the legislature in the same object of expenditure terms
3) The legislature makes line item appropriations, possibly after revising the requests, along object of expenditure lines. Performance or program data may be included in the budget document to supplement or support the object of expenditure requests

Question 49

The accounting system must…

Answer 49

capture data in sufficient detail to permit budgetary control and accountability at the legislative to executive budgetary control points
and
accumulate data in sufficient detail to permit budgetary control and accountability at the chief executive - department head budgetary control points

Question 50

The appropriations detail adopted in the act determines…

Answer 50

the flexibility granted to the executive branch by the legislative body and the budgetary control points.