IV. State and Local Governments

Question 1

What are the 6 characteristics of effective financial reporting?

Answer 1

Understandability
Reliability 
Relevance
Timeliness
Consistency
Comparability

Question 2

What are the 5 elements of the Statement of Financial Position?

Answer 2

Assets
Liabilities
Deferred Inflow of Resources
Deferred outflow of Resources
Net  Position (not net assets, not equity)

Question 3

What is Encumbrance Accounting?

Answer 3

In accounting, an encumbrance is an open commitment to pay for goods or services ahead of the actual purchase. In other words, the purchasing company makes a promise to pay before the expense is incurred. Once the transaction is approved, the commitment becomes legally binding. That is, the purchaser becomes legally obligated to make the payment. Encumbrances are also known as pre-expenditures since they act as budgeted reserve funds before the actual expenditure.

Question 4

What is the basic governmental fund accounting equation?

Answer 4

Current financial assets 
\+ Deferred outflows 
– Current financial liabilities 
– deferred inflows 
= Fund balance

Question 5

When the budget for the General Fund is recorded, the required journal entry will include:

Answer 5

DR: Expenditures
CR: Appropriations

Question 6

What type of government organization funds use the accrual basis of accounting?

Answer 6

The economic resources measurement focus and accrual basis of accounting are used for Proprietary Fund statements (Enterprise funds & Internal Service funds) and Fiduciary Fund statements (Custodial funds, Pension Trust funds, Private Purpose Trust funds, and Investment Trust funds).

Question 7

According to GASB 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, what 5 categories of required supplementary information should be disclosed in the financial reports of state and local governments?

Answer 7

• Management’s Discussion and Analysis;
  * Schedule of Funding Progress and Schedule of Employer Contributions (these schedules relate to pension disclosures);
  * Budgetary Comparison Schedules (this disclosure is for governmental funds)
  * Information about Infrastructure Assets Reported Using the Modified Approach;
  * Certain information about Risk Financing Activities.

Question 8

What are the four sections in the Statement of Cash Flows for an Enterprise Fund?

Answer 8

(1) cash flows from operating activities,
(2) cash flows from noncapital financing activities,
(3) cash flows from capital and related financing activities, and
(4) cash flows from investing activities.