Modified Accrual Accounting

Question 1

What are the similarities between GAAP and Modified Accrual Accounting?

Answer 1

1) Both serve to produce balance sheets or statements of financial position (current assets and deferred outflows of resources = current liabilities and deferred inflows of resources + fund balance)
2) Both serve to produce operating statements

Question 2

What are the differences between GAAP and Modified Accrual Accounting?

Answer 2

1) Commercial Accounting
I/S -> RE -> B/S -> Next Year

2) Governmental Modified Accrual
Book: 
Budget
Activity
Encumbrances

Close:
Budget Activity
Encumbrances

BAE -> BAE -> B/S -> Next Year

Question 3

Define budgetary, activity, and encumbrance?

Answer 3

Budgetary accounting - is emphasized in order to control spending

Activity - emphasizes flow of current financial resources

Encumbrance accounting - is used to record purchase orders (like post its on an account)

Question 4

Mnemonic for GRaSPP funds for BAE?

Answer 4

BAE - BAE

• You book budget, activity, encumbrances then you close budget, activity, and encumbrances.

Question 5

What is the journal entry to record Budget?

Answer 5

Dr: Estimated revenue control
Dr: Estimated other financing sources (transfers in)
Dr: Budgetary Control - negative
Cr: Appropriations Control = approved spending
Cr: Estimated other financing uses (transfers out)
Cr: Budgetary Control - positive

Question 6

What is the journal entry to close Budget?

*The same amounts that were recorded at beginning of period

Answer 6

Dr: Appropriations Control = approved spending
Dr: Estimated other financing uses (transfers out)
Dr: Budgetary Control - positive
Cr: Estimated revenue control
Cr: Estimated other financing sources (transfers in)
Cr: Budgetary Control - negative

Question 7

Are assets capitalized in modified accrual accounting? What are debts called?

Answer 7

Assets are not capitalized in modified accrual accounting.

Debts are called other financing sources - NOT LTD

Question 8

When can revenue be recognized?

Answer 8

Revenue is recorded when measurable and available.

• Items after 60 days after fiscal year-end aren’t revenue.

Collections for Year 1 and collections for Jan and Feb are revenue.

Question 9

How to record following for property tax:

1) Journal entry to record revenue when billed
2) Journal entry to record collection
3) Journal entry to reclassify receivables to delinquent
4) Journal entry to reclassify allowance

Answer 9

Journal entry to record revenue when billed

Dr: Real property taxes receivable - current
Cr: Revenues - property taxes
Cr: Allowance for uncollectible taxes receivable - current

Journal entry to record collection

Dr: Cash
Cr: Real property taxes receivable - current

Journal entry to reclassify receivables to delinquent

Dr: Property taxes receivable - delinquent
Cr: Property taxes receivable - current

Journal entry to reclassify allowance

Dr: Revenues - property taxes
Dr: Allowance for uncollecttible taxes - current
Cr: Allowance for uncollectible taxes - delinquent

Question 10

What are expenditures for GRaSPP funds?

Answer 10

Operating and capital transactions are considered expenditures. Principal and interest is a debt service expenditures.

• Police cars and salaries are both expenditures

Question 11

How to record following for expenditures:

1) Journal entry to record purchase of capital item
2) Journal entry to record principle payment on noncurrent debt

Answer 11

Journal entry to record purchase of capital item

Dr: Expenditure - capital outlay
Cr: Vouchers payable or cash

Journal entry to record principle payment on noncurrent debt

Dr: Expenditure - Debt service
Cr: Cash

Question 12

What are alternatives for the expenditure recognition?

For current assets only *

Answer 12

1) Purchase Method
- Expenditure current assets when purchased
- Reverse for items not used during period

2) Consumption Method
- Set up as current asset when purchased
- Expenditure items as consumed

Question 13

What are the journal entries for purchase method:

1) Journal entry to record buying an item
2) Journal entry to record use of item
3) Journal entry to record items on hand at year end

Answer 13

Purchase Method:

Journal entry to record buying an item

Dr: Expenditure
Cr: Vouchers payable

Journal entry to record use of item

NO ENTRY

Journal entry to record items on hand at year end

Dr: Supplies inventory
Cr: Nonspendable fund balance - inventory (NUCAR)

Question 14

What are the journal entries for consumption method:

1) Journal entry to record buying an item
2) Journal entry to record use of item
3) Journal entry to record items on hand at year end

Answer 14

Consumption Method:

Journal entry to record buying an item

Dr: Supplies inventory
Cr: Vouchers payable

Journal entry to record use of item

Dr: Expenditure (Consumption)
Cr: Supplies inventory

Journal entry to record items on hand at year end

NO ENTRY

Question 15

What is the journal entry to record routine transfer between funds:

Answer 15

Dr: Other financing uses - transfers out, debt service fund
Cr: Cash (from general fund)

Question 16

Examples of function program, organizational unit, and activity?

Answer 16

Functional program - Public safety

Organizational unit - Public safety -> Police and Fire

Activity - Police -> Drug, Highway

Question 17

How to record issuance of bond in governmental fund? Also, does bond go in balance sheet or operating statement?

Answer 17

Bond goes in operating statement and is NOT a bond payable.

Dr: Cash
Cr: Other financing sources - bonds issued

Question 18

How to record expenditure of principle and interest?

Answer 18

Dr: Expenditure - Principal
Dr: Expenditure - Interest
Cr: Cash