Gov't

Question 0

What are 4 types of Fiduciary funds?

Answer 0

Investment Trust Fund - bunch of gov’ts pool their funds into a larger investment fund in hopes for higher return on their investment as oppose to investing individually with smaller investment amount. Only the gov’t which has taken funds would report this not the gov’ts providing the fund.
Private-Purpose Trust Funds - funds held in trustee capacity where both principle and interest are for the benefit of specifically designated external parties such as individuals, private organizations, or other gov’ts. Unclaimed property is usually reported here.
Pension Trust Fund - held to pay for city’s retiring employees.
Agency Funds - any resources a gov’t holds as an agent for individuals, private organizations, or other gov’ts.

Question 1

Which fund is not reported on Government-Wide Financial Statements (GWFS)?

Answer 1

Fiduciary funds are not reported on GWFS because these assets are not available for the benefit if the government. Gov’t is acting in trustee or agency capacity for these funds.

Question 2

What are the 3 primary differences which cause funds amount to be different in Fund Statements and in governmental activities section of GWFS?

Answer 2

1- Totals will vary because funds are grouped differently.
2- Different assets and liabilities are being reported.
3- The timing of recognition is different.

See page 703 in Acc 414 book.

Question 3

Where is Fund-Balance–Unassigned listed on Balance sheet?

Answer 3

It is found only under General Fund and reflects any amount of net assets where no use has been designated either externally or internally. This money is available to government officials for any purpose viewed as appropriate.

Question 4

Encumbrance entries

Answer 4

In contrast to for-profit accounting, purchase commitments and contracts can be recorded in the governmental funds prior to becoming legal liabilities. Once the purchase order is completed or contract services performed, the encumbrance entries are reversed and a legal liability for payment replaces the commitment. See page 709. If by the end of period a commitment remains outstanding, it is removed from accounting records via reversing entries because the whole purpose of the encumbrance entry is to restrict funds for that particular purpose. When the purpose is left unfulfilled, it is simply reversed.

Question 5

Are encumbrances recorded on GWFS as they are on Fund Financial Statements?

Answer 5

Nope! GWFS are prepared like regular FSs and we don’t record placement of an order in for-profit accounting.

Question 6

What is inter period equity?

Answer 6

Incurring a cost in one period that is paid for in a later period.

Question 7

What is the measurement focus of modified accrual accounting?

Answer 7

The measurement focus of modified accrual basis accounting is on “Flow of financial resources” that is, the inflow and outflow of of “expendable resources”. Not on the “flow of economic resources”, “ income determination” as would be the case in full accrual basis.

Question 8

When is revenue recognized under modified accrual basis of accounting?

Answer 8

Revenues are recognized in the period in which they become “measure able and available “ not when they are earned.

Do not get tricked by “Earned” used in modified accrual accounting questions because “Earned” is ONLY used with full accrual.

Question 9

What is “Measurable” and “Available” under modified accrual accounting basis?

Answer 9

Measurable - the amount is known or can reasonable be estimated - property taxes.

Available - the amount is both (1) legally due (2) received in cash either (a) by the end of fiscal period (b) “In time to pay for obligations if the current fiscal period” the 60 day rule.

Question 10

Is governmental accounting cash basis?

Answer 10

Although governmental entities frequently recognize revenue only when cash is received, this is NOT cash basis accounting. Cash basis accounting is never GAAP for governmental entities.

Question 11

Which revenues are subject to full accrual accounting?

Answer 11

Revenues that are measurable and legally due prior to receipt of cash are normally recognized on the accrual basis. They are:

Property Taxes
Interest and penalties on delinquent taxes.
Investment revenue
Regularly billed charges for services.
Taxes collected by other governments but not yet remitted.

However the amount of revenue reported on financial statements is the amount of cash received in current period plus any additional revenue to be received in the next 60 days of the following period. Any remaining revenue is reported as Deferred.

Question 12

When are expenditures recognized?

Answer 12

Expenditures in general are recognized on the accrual basis, that is, when the liability is measurable and has been incurred, except the following.

Interest on general long term debt is reported when due (on the due date).
General long term debt refers to LT debt incurred by governmental funds, which are the funds that provide Gen. gov’t Svcs.

Don’t get tricked by interest on ST debt and Specific LT debt both of which are accrued.

Question 13

Is there any difference of reporting for capital expenditures(land, bldg, equipment) and period expenditures(wages, rent, utilities)?

Answer 13

Nope! They are all expenditures.

Question 14

Are expenses and expenditures the same when it comes to reporting?

CPA exam tricks on these words.

Answer 14

Nope:

Expenses are ONLY used in full accrual accounting basis where they are matched with the revenues.

Expenditures are used ONLY in modified accounting basis.

Question 15

How many levels GASB specifies for financial reporting?

Answer 15

GASB specifies 2 levels. They are:

1- General Purpose Financial Statements (GPFS).

2- Comprehensive Annual Financial Report (CAFR).

Question 16

What are 3 principal components of GPFS?

Answer 16

1- MD&A ( Management’s Discussion and Analysis)

2- Basic Financial Statements

3- RSI (Required Supplementary Info).

Question 17

What are 3 main sections of CAFR?

Answer 17

1- Introductory Section
2- Financial Section
3- Statistical Section

Question 18

What’s included in Basic Financial Statements under CAFR guidelines?

Answer 18

Basic Financial Statements consist if 3 separate items.

1- Government - Wide Statements
2- Fund Statements
3- Notes to Financial Statements

Question 19

Fiduciary Fund statements are prepared using what accounting basis?

Answer 19

Full Accrual

Question 20

What terms are used to identify short-term and long-term inter fund loans?

Answer 20

Short term loans are recorded by phrases such as “ due from” and “due to”

While long term loans are recorded by phrases such as “advances to” and “ advances from”

Question 21

To be Fiscally independent a gov’t must be able to take what 3 actions without an approval from another gov’t?

Answer 21

1- Determine its budget.
2- Levy taxes or set user fees.
3- Issue bonded debt.

Question 22

What’s the definition if Component Unit?

Answer 22

Legally separate organizations for which the primary government officials are financially accountable or for which the relationship with the primary government is such that it would be misleading or incomplete to exclude it from the primary government’s financial statements.

Question 23

Must know these Expenditure Classifications for the CPA exam. They are frequently tested.

Answer 23

FUND — The fund supplying the financial resources.

PROGRAM or FUNCTION — The broad purpose of the expenditure (i.e., public safety, education, health, etc.)

ACTIVITY — A specific goal or objective under a program. For example, child vaccination, AIDS awareness, etc.

ORGANIZATIONAL UNIT — The department or agency within the governmental entity that is responsible for managing the expenditures. For example, community clinics, emergency services, health depts.

CHARACTER — Identifies the period of time benefitted by the expenditure. For example, current expenditures, capital outlays, debt service, intergovernmental transfers.

OBJECT — The ‘natural’ expense category, the specific purpose of the expenditure. For example, salaries, supplies, rent, etc.

Question 24

How are expenditures reported in Fund and GWFS?

Answer 24

Expenditures in the FUND STATEMENTS for the governmental funds are reported by CHARACTER. Expenditures in the GWFS are reported by the PROGRAM OR FUNCTION.

Question 25

What is residual equity called under modified accrual basis?

Answer 25

It is called FUND BALANCE not Retained Earnings or Owner’s Equity.

Side note:

Also gov’t uses Warrants not checks as terminology to refer to checks.