Governmental Accounting: Fund Accounting and Financial Statements

Question 1

A public college or university must produce statements much like those of a governmental entity. Most of the services provided by such schools (such as tuition) have a user charge. Should a public college or university classify its activities as business-type or as governmental?

Answer 1

a public college or university has a choice of classifying its activities as all business-type, all governmental or a combination of both.

Question 2

If a public college or university classifies all of its activities as business-type, does the school have to report both government-wide F/S and fund-based F/S?

Answer 2

the school does not have to report all of the government-wide F/S and all of the Fund-based F/S.

instead the college or university has to produce

1. Statement of Net Assets
2. Statement of revenues, expenses, and changes in net assets
3. Statement of Cash Flows

Question 3

What F/S are produced for the proprietary funds in fund-based F/S?

Answer 3

1. Statement of Net Assets
2. Statement of revenues, expenses, and changes in net assets
3. Statement of Cash Flows

Question 4

For internal reporting purposes, governments use fund accounting, which is also the basis for fund-based F/S. What is meant by fund accounting?

Answer 4

The key reason for using fund accounting is accountability.

a separate set of self-balancing accounts is maintained for each identifiable activity of the government.

Question 5

Why have state and local governments historically relied on fund accounting to accumulate and convey financial information?

Answer 5

promotes accountability

monitor legal restrictions

use of different accounting principles in connection with different activities

Question 6

What are the 3 broad classifications of funds utilized in governmental fund accounting as it is applied by state and local governments?

Answer 6

Governmental funds -Used for activities that provide service to the public without a fee, such as police protection and school systems

Proprietary funds - used for activities where a fee is charged to cover, at least in part, the cost of the service being provided

Fiduciary funds - Used to monitor money and other financial resources held by a government in a trustee capacity for parties external to the government.

Question 7

How many different fund types can be found within each of the three broad fund classifications used in governmental accounting?

Answer 7

Governmental Funds - 5 types

Proprietary Funds - 2 types

Fiduciary Funds - 4 types

Question 8

What are the five fund types found within the Governmental Funds?

Answer 8

General fund - any money or activity where no other fund type is appropriate, usually for public-service activities

Special Revenue fund - receipt and expenditure of current financial resources for special operating purposes; often for grants, taxes, and tolls with a designated purpose

Capital Projects fund - receipt and expenditure of current financial resources for construction & acquisition of long-lived assets

Debt Service fund - receipt and expenditure of current financial resources to pay long term debts and related interest costs

Permanent funds - assets contributed by an external donor where only the income can be used by the government

Question 9

On the fund-based F/S reconciliations must be reported. Why are those reconciliations necessary?

Answer 9

Reconciliations must be shown to match the final figures shown for the governmental funds in the fund-based F/S with the final figures shown for the governmental activities in the government-wide F/S.

differences exist for many reason including:

the fund-based F/S measure only current financial resources, whereas the government-wide F/S measure all economic resources

the timing of recognition within the fund-based statements is guided by modified accrual accounting, whereas timing in the government-wide statements follows accrual accounting

internal service funds are not included as governmental funds, although most of the ISF’s are reflected as governmental activities in the government-wide statements

Question 10

A state or local government must produce two different types of financial statements. What are these two types of statements?

Answer 10

government-wide F/S

fund-based F/S

Question 11

In reporting Governmental Funds within the fund-based F/S, what is the measurement focus?

Answer 11

measurement of current financial resources, amount held currently and inflow and outflow of those financial resources

Question 12

In reporting the governmental funds within the fund-based F/S, the measurement focus concentrates on current financial resources and the flow of those financial resources. What is normally included in the term current financial resources?

Answer 12

Current financial resources are usually viewed as monetary assets and any liabilities that are a current claim on those financial resources.

Question 13

In producing fund-based F/S for the governmental funds, what method is used to determine the appropriate timing for the reporting of transactions?

Answer 13

in reporting the governmental funds on fund-based F/S timing of revenue and expenditure recognition is monitored by a system known as modified accrual accounting, which is based on when current financial resources are measurable and available.

Question 14

On fund-based f/s for the governmental funds, what capital assets and long-term liabilities are reported on the b/s?

Answer 14

no capital assets or long-term liabilities are shown

Question 15

What are the two fund types to be found within the proprietary fund?

Answer 15

enterprise funds - use to account for activities where a service is open to the public with a user charge; such as a bus system or a water utility

internal service funds - used to account for activities where a service is open to other activities of the government with a user charge (such as a data processing center or central warehouse)

Question 16

For fund-based F/S, what accounting is used in reporting proprietary funds?

Answer 16

accrual based accounting

Question 17

What are the four fund types found within the fiduciary funds?

Answer 17

agency funds - money is held that must be turned over to a person or to another government. The money is simply passing through the government to the appropriate recipient

Pension trust fund - money is held for employee retirement plans

Investment trust funds - records money that comes from other governments to create investment pools in hopes of receiving higher profit returns

Private-purpose funds - records money that is held in a trustee capacity for the benefit of an external party, for example, an estate which is being held by a government until relatives of the decedent can be located

Question 18

What accounting is used to record an Agency Fund?

Answer 18

only the asset being held and the related liability upon conveyance are recorded

Question 19

A state or local government produces fund-based F/S. the current financial resources of a governmental fund are increased as a result of an event or other transaction. In what 2 ways can this increase be reported?

Answer 19

either as revenue or other financing source if it is not appropriate to label it revenue

Question 20

In producing fund-based F/S for the governmental funds, what are the two most common increases in current financial resources that are labeled as other financing sources?

Answer 20

1. proceeds from issuance of long-term bond or other obligation
2. inflow from an inter-fund transfer

Question 21

The current financial resources of a governmental fund are decreased as a result of a transaction or other event. What are the two methods by which this decrease can be reported on fund-based f/s?

Answer 21

either as an expenditure or another financing use if not appropriate to label it expenditure

Question 22

A decrease occurs in the current financial resources held by a governmental fund. The decrease is reported as an expenditure. What are the three possible reasons for a decrease in current financial resources that should be reported as expenditures on fund-based F/S?

Answer 22

acquisition of a capital asset that is not a current financial resource

spending current financial resources on a cost that would be viewed as an expense by a business

payment of principal on a previously reported long-term liability

Question 23

For fund-based f/s, at what point in time does a governmental fund record an expenditure?

Answer 23

an expenditure is normally reported on fund-based f/s when the liability comes into existence against current financial resources.

Question 24

For fund-based f/s, a decrease in the current financial resources of a governmental fund can be reported as an other financing use. What is the most common example of an event that is reported in this manner?

Answer 24

outflow from a intra-fund transfer

Question 25

Indicate the fund type responsible for reporting for the following:

1. Municipal public golf course about to open
2. Money for public school teachers retirement
3. motor pool to service government vehicles
4. Fire department
5. Money held to build a new city hall
6. Money received from the state to pay higher salaries to police officers.

Answer 25

1. proprietary fund - enterprise fund
2. fiduciary fund - pension trust fund
3. proprietary fund - internal service fund
4. governmental fund - general fund
5. governmental fund - capital projects fund
6. governmental fund - special revenue fund

Question 26

What should be included in the comprehensive annual financial report of a state or local government?

Answer 26

Management discussion and analysis (MD&A)

F/S
Government-wide F/S
Fund-based F/S
Notes to the F/S

Required supplemental info

Question 27

In producing fund-based F/S for the governmental funds of a state or local government, what are the two primary financial statements?

Answer 27

balance sheet

statement of revenues, expenditures, and changes in fund balances

Question 28

What three groups are reported on the balance sheet for governmental funds in the fund-based F/S?

Answer 28

Assets - current financial resources such as cash, receivables, supplies, prepaids and investments

Liabilities - any liability that is a claim to current financial resources

Fund Balances - divided between and unreserved, restricted fund balance indicating the amount of current financial resources the government is free to expend and various restricted fund balances indicating financial resources that must be used for specified purposes

Question 29

What four different types of accounts are presented in the fund-based F/S on the statement of revenues, expenditures, and changes in fund balances for the Governmental Funds?

Answer 29

revenues

expenditures

other financing sources

other financing uses

Question 30

On fund-based F/S for the governmental funds, how many columns are reported?

Answer 30

On fund-based f/s for the governmental funds, there should be a separate column to report the general fund. in addition, there is a column to report any other individual fund that is considered major (assets, liabilities, revenues, or expenditures make up 10% of the total for all governmental funds and 5% of the total for all governmental and enterprise funds as a whole) All other funds are accumulated into a single column. there is also a total column to reflect the governmental funds as a whole.

Question 31

On fund-based F/S for the governmental funds a “due to capital projects fund” is shown by the general fund and a “due from general fund” is shown in the capital projects fund.

How are these two balances reported within the “total governmental funds” column on the balance sheet?

Answer 31

Such balances are not eliminated when reporting fund-based F/S. Although they exist between two governmental funds both figures will be reported in the total column. Eliminations are not made in the fund-based statements.

Question 32

For fund-based F/S, what is the measurement focus utilized by the Proprietary Funds?

Answer 32

measure all economic resources

Question 33

On the statement of cash flows for the Proprietary Funds, what four categories are reported?

Answer 33

cash flows from operating activities (direct method)

cash flows from noncapital financing activities

cash flows from capital and related financing activities

cash flows from investing activities

Question 34

What are the two F/S reported within the government-wide F/S?

Answer 34

Statement of net assets

statement of activities

Question 35

On government-wide F/S, how are the various activities of a state or local government classified?

Answer 35

Governmental activities

business-type activities

Question 36

On government-wide F/S, what funds are included in the category of governmental activities?

Answer 36

Governmental activities includes all of the governmental funds, in addition most internal service funds are included within the governmental activities unless they provide most of their services to one or more enterprise funds.

Question 37

On government-wide F/S, what funds are included in the category of governmental activities?

Answer 37

Governmental activities includes all of the governmental funds, in addition most internal service funds are included within the governmental activities unless they provide most of their services to one or more enterprise funds.

Question 38

What measurement basis is used for the government-wide F/S?

Answer 38

all economic resources and the changes in the economic resources

Question 39

What measurement basis is used for the government-wide F/S?

Answer 39

all economic resources and the changes in the economic resources

Question 40

What funds are not included in the government-wide F/S?

Answer 40

Fiduciary funds are not included within the government-wide F/S at all. these assets are held in trust and cannot be used by the government, since they cannot be used, there is no reason to include them in the government-wide F/S

Question 41

What standard is used to determine the proper timing of recognition in government-wide F/S?

Answer 41

accrual accounting

Question 42

What accounts are found on a statement of net assets within the government-wide F/S?

Answer 42

3 sections

assets (current and capital assets)

liabilities (current liabilities and LT liabilities)

net assets

Question 43

What is found in the net assets section of the statement of net assets within the government-wide F/S?

Answer 43

1. A measure of the amount of capital assets within the net assets less any related debt
2. any portion of the net assets that has been restricted
3. the amount of unrestricted net assets

Question 44

On the statement of activities within the government-wide F/S, revenues are divided into the broad categories. What are these categories?

Answer 44

Program revenues - generated by a specific function; utility revenues

General revenues - derived from the population as a whole and not from a particular function; property taxes and sales taxes.

Question 45

How are program revenues shown on the statement of activities within the government-wide F/S?

Answer 45

Program revenues are shown with the function that generated them. expenses are also assigned to each of these functions so that a net expense or net revenue figure can be determined for each function. In that way, the financial benefit or financial burden of each function can be reported.

Question 46

How are general revenues shown on the statement of activities within the government-wide F/S?

Answer 46

A net expense or revenue is first determined for each separate function of the government. A total is computed for all functions. General revenues are then added to this total. General revenues will include such items as property taxes, sales taxes, investment income and gains and losses. The statement is read horizontally and then vertically.

Functional expense 20 net expense (17)
Program revenue 3 General Revenue 30
Change in net assets 13

Question 47

On the statement of activities within the government-wide financial statements, a state or local government may show special items just below general revenues. What is a special item?

Answer 47

A special item is a gain or loss from a significant transaction or other even within the control of management that is either unusual in nature or infrequent in occurrence.

Question 48

A state or local government must now present it is comprehensive annual financial report (CAFR) a section entitled management’s discussion and analysis (MD&A). What should be included in an MD&A?

Answer 48

The MD&A should provide an objective and easily readable analysis of the government’s financial activities based on currently known facts, decisions, and conditions. It should discuss current-year results in comparison with the prior year, with emphasis on the current year.

Question 49

A primary government must prepare a comprehensive annual financial report (CAFR). Inc some cases, a special-purpose local government for reporting purposes. What are the three criteria for being a primary government?

Answer 49

1. separately elected governing body
2. legally independent of any other body
3. is fiscally independent

Question 50

What is a component unit?

Answer 50

A component unit is legally separate from a primary government, but is still so closely connected that it should not be omitted from the primary government’s F/S.

Usually a component unit is either fiscally dependent on the primary government or the primary government can impose its will on the component unit.

An entity can also be a component unit if its economic resources are for the benefit of the primary government and the primary government can get those resources.

Question 51

What are the two ways by which a primary government can report a component unit?

Answer 51

a component unit can be discretely presented. in that case, the information for the component unit is presented on the far right side of each government-wide F/S.

a component unit can also be blended. In that case, the information is included within either the governmental activities or business-type activities as if the activity was an actual part of the primary government.

Question 52

How are inter-fund transfers reported on the government-wide F/S?

Answer 52

transfers that occur completely within the governmental activities or completely within the business-type activities are not reported at all.

transfers that occur between the governmental activities and the business-type activities are reported within each. the figures are used to eliminate each other when deriving a total figure for the primary government as a whole.

Question 53

How should a public college or university report its financial activities?

Answer 53

follow the direction of GASB statement number 34