Governmental Accounting

Question 1

What fund categories do government entities use?

Answer 1

Government entities use 3 broad fund categories to account for activities. These are governmental, proprietary and fiduciary.

Question 2

What is the governmental fund category and types?

Answer 2

Governmental (Serving the public) - this fund uses the modified accrual accounting system

1. Permanent (assets both. restricted principal)
2. Debt service (interest and principal payment)
3. Capital projects (major acquisitions)
4. Special revenue (earmarked source)
5. General fund (all other activities)

Question 3

What is the proprietary fund category and types?

Answer 3

Proprietary (businesslike) - this uses the accrual accounting system

1. Internal services (goods and services to other funds)
2. Enterprise (goods and services to users for fees)

Question 4

What is the fiduciary fund category and types?

Answer 4

Fiduciary (resources held for others) - this uses the accrual accounting system

1. Pension trust ( employee pensions and retirement benefits)
2. Investment trust (resources invested on behalf of multiple agencies)
3. Private purpose trust(unclaimed tax refund)
4. Custodial (assets equal liabilities)

Question 5

What is the classification of resource outflows on fund financial statements?

Answer 5

Expenditure outflows - that is operating, capital & debt service.

Nonexpenditure outflows - Other financing uses(non operating)
Special items (infrequent or usual and under control or entity)
Extraordinary items (infrequent and unusual and not under control of entity).

Question 6

What are state and local government entities required to provide when putting together financial statements?

Answer 6

State and local government entities are required to provide an Annual Comprehensive Financial Report (ACFR) consisting of three sections: introductory, financial and statistical. This financial section of the ACFR consists of 5 components.

1. Management discussion and Analysis
2. Government-wide financial statements
3. Fund financial statements
4. Notes
5. Required supplementary information (RSI)

Question 7

What does GASB 34 requires?

Answer 7

This specifically requires the following minimum budgetary information in the required supplementary information to government-wide financial statements, regarding the general fund and major special revenue funds (ie. a schedule showing the original budget and the final appropriations budget and actual inflows, outflows and balances on a budgetary basis.

Question 8

How is closing entries treated at the end of the fiscal year?

Answer 8

At the end of the fiscal year, closing entries are required to zero out the budgetary and nominal accounts of a governmental fund. If appropriations exceed actual expenditures, the net effect of the amount no spent will increase(i.e credit) the budgetary fund balance account.

Question 9

How is governmental unit’s accounting treatment of a long-lived assets?

Answer 9

This depends on the fund in which the asset is recorded. A long-lived asset purchased for a governmental fund (eg. general fund) requires recording a one-time outflow called an expenditure for the asset’s full amount (ie. no capitalization and depreciation).

Question 10

What is the government-wide statement of net position?

Answer 10

This is like a balance sheet and presents the assets, liabilities, and net position of a governmental unit. The statement is divided into four columns: governmental activities, business type activities, component units and a primary governmental total.

Question 11

What does government-wide financial statements present?

Answer 11

This presents the results of an entire governmental unit. They are typically prepared using the economic resources measurement focus and the accrual basis of accounting.

Question 12

What are the state and local government fund characteristics?

Answer 12

Governmental funds - Modified accrual - Current financial resources
Proprietary funds - Full accrual - Economic Resources
Fiduciary funds - Full accrual - Economic Resources
Government-wide - Full accrual - Economic Resources

Question 13

What is the accounting methods for government entities?

Answer 13

(Accrual) Modified Accrual
Focus - Profit Budget Compliance
Economic resource measurement Financial Resource Management

Revenue - Earned & realizable Measurable & Available

Cost - Expenses (matching principle) Expenditures (no matching principle)

Capital Assets - Definite useful life(depreciable asset) Report as expenditure(no depreciation)
Indefinite useful life(nondepreciable asset)

Question 14

What is GASB 34?

Answer 14

This requires that proprietary funds such as enterprise funds report information using an accrual basis and economic resources measurement focus, similar to the type of information reported in the financial statements of private businesses. This form of reporting includes all economic transactions and presents both long-and short-term consequences. The equipment would therefore be capitalized and depreciated in order to correctly portray the equipment as an asset used in the production of the enterprise fund’s revenues, with economic benefits that are consumed the useful life.

Question 15

What are the basic characteristics of government financial reports?

Answer 15

Understandability - Users can comprehend the information presented.
Reliability - Information provided is accurate and objective.
Relevance - Information is capable of making a difference in a user’s decision.
Timeliness - Information is provided to users quickly enough to be useful in their decision-making
Consistency - Same accounting principles are used in different periods(ie. overtime)
Comparability - Users can compare and contrast results of different entities because the same accounting principles are used.

Question 16

How do you determine funds available for use?

Answer 16

Funds available for use = Appropriations - Encumbrances - Expenditures

Question 17

What is an encumbrance?

Answer 17

This is a budgetary account for government funds that reflects the amount of purchase orders and other spending commitments charged against a government entity’s appropriations for the period. The account is simply reduced or eliminated as purchase orders and other commitments are fulfilled.

Question 18

What are the nonexchange revenue sources?

Answer 18

1. Derived tax revenue - this results from assessments imposed on exchange transactions of others, generally from earnings or consumption. Eg. Hotel occupancy tax revenue.
2. Imposed nonexchange revenue - this includes fines and taxes based on assets or rights. Eg. Property taxes are assessed on the value of certain real assets like land, buildings and personal properties.
3. Government-mandated nonexchange revenue - this is the result of one government unit’s provision of resources to another government unit for a specific purpose. This revenue typically comes from other government entities.
4. Voluntary nonexchange revenue - this comes from agreements entered willingly (eg private donations) that are not exchanges.

Question 19

What happens when a budgetary surplus is expected?

Answer 19

A government unit will record an increase in the budgetary fund balance account when a budgetary surplus is expected. Eg. If estimated revenues exceed appropriations, the entity will (1) debit estimated revenues,(2) credit appropriations and (3) credit budgetary fund balance(ie. retained earnings equivalent) for the difference.

Question 20

How are liabilities recognized under governmental fund?

Answer 20

Governmental fund liabilities are recognized to the extent that they will be paid for with currently available resources.

Question 21

What is the purpose of notes to financial statements?

Answer 21

The purpose of the notes of the financial statements is to expand upon information contained in the require financial statements and not upon information contained in required supplementary information. Per GASB “notes of the financial statements consists of notes that provide information that is considered essential to a user’s understanding of the basic F/S.

Question 22

What does levied mean in governmental accounting?

Answer 22

This simply means an enforceable claim exists. For example if a county levied 2,000,000 property taxes of which 1% is expected to be uncollectible. The property revenue that should be reported is 1,980,000 which is simply the 2mil * 1% then subtract the amount from the 2mil.

Question 23

What are the two budgetary accounts used when recording government purchase orders.

Answer 23

Using recording a purchase order, the encumbrances account is debited then the reserve for encumbrances account is credited. This entry is simply reversed once the order is fulfilled or when the accounts are closed at the year end.

Question 24

What are Appropriations?

Answer 24

These are approved expenditures that are estimated to occur in a period. These expenditures dictate the financial operations and spending for a government entity.

Question 25

What role does MD&A play in a local government’s financial statements?

Answer 25

MD&A for a local government is an integral component of its basic financial statements and would not be presented with other required supplementary information. It is typically required to include information on a comparative basis with the prior year, overall and individual fund financial statements, variance analysis information and information about long-term activities and expected events.

Question 26

What are the characteristics of enterprise funds?

Answer 26

1. The laws and regulations require that the cost of providing services be recovered through fees.
2. The pricing policies establish that the cost of providing services be recovered through fees.
3. Fund is financed with debt secured entirely by a pledge of net revenue from fees and charges.

Question 27

How are revenues reported on the government-wide statement of activities?

Answer 27

They are classified depending on whether they can(ie. program revenues) or cannot (ie, general revenues) be linked to a specific function or program. Program revenues generally include operating and capital grants and contributions, as well as charges for services.

Question 28

What is the categories of the total net position?

Answer 28

There are 3 categories & these are:

1. Net Investment in Capital Assets
2. Restricted net position
3. Unrestricted net position