M4 - Transactions and Events: Part 2

Question 1

Inventories are considered non-spendable. Non-spendable fund balances represent resources in a form that cannot be spent (e.g., inventories or prepaid expenditures) or are legally or contractually required to remain whole (e.g., permanent fund principal). (true or false)

Answer 1

True

Question 2

Restricted fund balances represent resources whose use has been limited by external sources such as creditors (e.g., debt covenants), contributors, other governments, laws, constitutional provisions or enabling legislation. (true or false)

Answer 2

True

Ex: Debt service fund resources that are subject to the terms and conditions of a bond indenture would be classified within fund balance as restricted.

Question 3

Assigned fund balances are constrained by the government’s intent to be used for specific purposes but are neither restricted nor committed. (true or false)

Answer 3

true

Question 4

Unassigned fund balance is the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed or assigned to specific purposes within the general fund. (true or false)

Answer 4

True

Question 5

Reciprocal interfund activity includes:

Answer 5

loans and interfund services provided and used.

Question 6

Nonreciprocal transfers include:

Answer 6

interfund transfers (which are displayed as either other financing sources or uses on the governmental fund financial statements or purely as transfers in proprietary fund financial statements) and interfund reimbursements. (which are shown on the face of the F/S)

Question 7

Which internal account should be credited when a governmental entity issues a purchase order for supplies?

Answer 7

A purchase order is a BINDING document and thus is recorded when issued.

DR: Encumbrances
CR: Budgetary Control

VOUCHERS PAYABLE is credited when goods are received. (encumbrance entry is reversed)

DR: Expenditures
CR: Vouchers Payable
DR: Budgetary Control
CR: Encumbrances

Question 8

Encumbrances outstanding at year-end in a states general fund would most likely be reported as a:

Answer 8

Fund balance commitment in the general fund.

Encumbrances are commitments or assignments of fund balance representing the amount of unperformed contracts for goods or services. Encumbrances at year-end do not constitute expenditures or liabilities. Therefore, at year-end encumbrances are reclassified as a commitment of assignment of fund balance that is not appropriate for expenditure.

Question 9

Encumbrances would not appear in which funds?

Answer 9

SE PAPI

Encumbrance accounting is used in the governmental (GRaSPP) funds but no in proprietary or fiduciary funds.

Question 10

Imposed nonexchange revenue transactions recorded as receivable prior to the period when resources are required to be used (such as occupational licenses) should be reported as deferred inflows (true or false)

Answer 10

true

Question 11

Assets associated with unavailable revenues should be recorded by crediting what?

Answer 11

Deferred inflows of resources.

DR: Accounts Receivable
CR: Deferred Inflows of Resources

Question 12

True or False: Governmental funds report interfund transfers as other financing sources (uses).

Answer 12

True

Only the governmental funds (general, special revenue, debt services, capital projects, permanent) report transfers to other funds as an “other financing use”

Although these transfers are not recorded as revenues or expenditures, they do affect both funds’ expendable resources and, therefore, affect the results of operations for governmental funds. (also proprietary funds)

Question 13

Financial Statements for which fund type generally report net position in their individual fund financial statements?

Answer 13

Proprietary funds & fiduciary funds

Question 14

A city council designates funds in the enterprise fund for future equipment replacement. The enterprise fund should report this as:

Answer 14

An unrestricted component of net position.

Net position will include classifications for investment in capital assets net of related debts, amounts restricted by external sources and unrestricted components.
INTERNAL DESIGNATIONS are classified as UNRESTRICTED.

Question 15

When goods are received that had been approved for purchase, the:

Answer 15

• Encumbrances account should be decreased (not increased), and the
• Expenditures account should be increased (not decreased)
• Receipt of goods prior to payment results in an accrual of the expenditure

Question 16

True or False: The general fund is most likely to have a fund balance classified as non-spendable inventory of supplies.

Answer 16

True

General fund will normally have supplies on hand at the end of the period

Question 17

For state and local governmental units, GAAP requires that encumbrances outstanding at year-end be reported as a component of committed or assigned fund balance so that funds will be available when the goods and/or services are received. (true or false)

Answer 17

true