SU 5: GOV Expenditures Flashcards
1
Q
What do modified accrual basis accounting and governmental budgeting practices focus on?
A
Near-term liquidity
2
Q
When are revenues recognized under modified accrual accounting?
A
When they are measurable and available (“susceptible to accrual”)
3
Q
When are expenditures recognized under modified accrual accounting?
A
Fund liability accrued n the period the related liabilities are incurred
Subject to certain significant exceptions for liabilities that do not require liquidation with current financial resources
4
Q
What liabilities are reported in general and special revenue funds?
A
Only those that represent claims against the funds current financial resources
5
Q
What expenditures are accrued under modified accrual accounting?
A
Expenditures that, once incurred, normally are paid in a timely manner and in full from current financial resources
Matured liabilities to be liquidated with current financial resources
6
Q
Why do governments often require short term financing?
A
Because revenue inflows tend to be “lumpy” and uneven while required outflows (incurred expenditures) are consistent
7
Q
TANs
A
Tax anticipation notes
Notes issued in anticipation of tax receipts and payable from those receipts
Generally issued to meet temporary operating cash flow requirements
8
Q
RANs
A
Revenue anticipation notes
Notes issued in anticipation of other revenue sources (usually from higher level governments)
Generally issued to meet temporary operating cash flow requirements
9
Q
BANs
A
Bond anticipation notes
Issued in anticipation of future bond issue to provide interim financing of capital projects
10
Q
Accounting for proceeds of TANs and RANs
A
Recorded as liabilities in the general fund or a special revenue fund
Dr cash
CR tax or revenue anticipation note payable
11
Q
Accounting for interest payable on RANs and TANs
A
If liability maturing early in the next year (aka short term from issue) interest will need to be accrued at year end
Dr expenditure - debt service
CR interest payable
12
Q
Accounting for short term investments under modified accrual
A
Dr temporary investment
CR cash
Interest accrued if it meets criterion of availability
13
Q
Availability criteria for recognizing revenue
A
Must be available in cash in the current period or soon enough thereafter to pay the bills of the current period
14
Q
Horizon for governmental budgets
A
Short term
15
Q
Liabilities not reported in government funds
A
Long term debt
Noncurrent liabilities (compensated absences, judgements and claims, pensions..m)
16
Q
Short term liabilities
A
Expenditures that, once incurred, normally are paid in a timely manner and in full from current financial resources
17
Q
Matured long term liabilities
A
Matured liabilities to be liquidated with current financial resources
18
Q
Near term liabilities
A
Combination of short term and matured long term liabilities
19
Q
Accounting equation for government funds
A
Financial assets + deferred outflows of resources = short-term liabilities and matured long term liabilities + fund balance + deferred inflows of resources
20
Q
Deferred inflows
A
(unearned income)
Government acquisition of assets (or reduction of expenditures)applicable to a future reporting period
On balance sheet in separate section after liabilities
21
Q
Deferred outflows
A
Consumption of net assets applicable to a future period (prepaid expenses)
22
Q
Governmental fund liabilities
A
Claims against current financial resources
23
Q
General long-term liabilities
A
Liabilities that are not currently payable
Not reported in fund accounting, nor are the accrued expenditures until they become due and payable with current financial resources
24
Q
Accounting for expenditures once incurred normally paid in a timely manner and in full from current financial resouces
A
As claims against current financial resources anything not paid at lear end is accrued as expense and liability in the governmental fund
25
Accounting for items that create liabilities that governments normally expect to liquidate over future periods with financial resources available in those periods
Recognized in governmental funds only as liabilities mature each year on the occurrence of relevant events
Portions not matured are long term debt, not fund debt
26
Examples of items that create liabilities that governments normally expect to liquidate over future periods with financial resources available in those periods
Claims and judgements
Compensated absences
Special termination benefits
Landfill closure and post closure care costs
27
Accounting for liabilities resulting from promises to pay pensions, retiree health care, other postemployment benefits
Varies by government and type of benefit
Government fund expenditure should =
Amount paid by employer to the plan
Plus
Benefits that are due and payable but the plan lacks sufficient resource to pay benefits
28
Postemployment benefits in governmental funds
Accounted for as expenditures and liabilities in period financed
Accruals made only for additional benefits that have matured and are due for payment by the government due to lack of financing in the open
29
Reporting full liability from underfunding post employment benefit plans
Goes in government wide statements only (with all long term debt)
30
Salary, supplies and utilities accrual (fund reporting)
Can be accrued in the fund if to be paid with current financial resources
Dr expenditure
CR accrued liability
31
Modified accrual accounting for claims and judgements
Only accrue matured liabilities - ones due and payable (expected to be liquidated with expendable current financial resources)
Dr expenditure
CR accrued liability
Long term liabilities in government wide statements only .
Settlements reported as expenditures as come due for payment
32
When are compensated absences accrued when benefits earned?
- if employee's right to receive compensation is based on services already performed
- if it is probable that employer will compensate employee via paid time off or some other means
33
Accrual for compensated absences under modified accrual accountinf
Accrual made only for matured lability. Amounts coming due because employees have been terminated or retired but absences payment has not yet been made
34
Recognizing and measuring post employment benefit expenditures in governmental funds
- for pensions: the amount paid during the year
- for retiree health care plans: the amount paid during the year or due to be paid at year-end for incurred medical expenses
35
Types of interfund transactions
- interfund services provided and used
- interfund transfers
- interfund loans
- interfund reimbursements
36
Interfund services provided and used
When one fund sells goods to or performs services for another fund for a price approximating their external exchange value (typically enterprise or internal service fund)
37
JE for fund purchasing services in interfund transactions
Dr expenditures - service
Cr- due to service fund
(Short term payable)
38
JE for fund providing service in interfund transaction
DR due from general (or other) fund
CR Revenues -services
Short term receivables
39
Interfund transfers
Flow of assets from one fund to another without an equivalent flow of assets in return and without a requirement for repayment
Ex: operating subsidy transfers from general fund
NOT revenue or expenditures/expense
40
Reporting interfund transfers on governmental fund statements
Reported as other financing sources (uses)
41
Reporting interfund transfers on proprietary fund statements
Reported separately after totaled "income (losses) before transfers"
42
Interfund transfers transferor journal entry
Dr transfer out to xxx fund
CR cash (or due to xxx fund)
43
Interfund transfers transferee journal entry
Dr cash or due from general fund (or other)
CR transfer in from general fund (or other)
44
Interfund loans
When one fund lends cash to another with a requirement for repayment
No authoritative retirement to distinguish between long-term and short-term interfund loans but still generally done
45
Short-term interfund loan, lender JE
Dr due from xxx fund (or loan receivalbe)
CR cash
46
Short-term interfund loan, borrower JR
Dr Cash
CR due to general (or other fund)
47
Issues in recording long term loans in governmental funds
Need a journal entry to show on the balance sheet of the lending find to show that portion of it's fund balance is not currently available for spending
48
Long-term interfund loan, lender JE
Dr advance to xxx fund aka Non-reciprocal transfer out
CR cash
Dr unassigned fund balance
CR nonspendable find balance
49
Long-term interfund loan, borrower JE
Dr cash
CR advanced from general fund
50
Interfund reimbursements
When one fund repays another for expenditures were made by the other fund on the first fund's behalf
51
Recording interfund reimbursement due
Dr due from xxx fund
CR expenditure (that had previously been incurred)
52
Recording payment of interfund reimbursement (reimbursor side)
Dr expenditure (or expense)
CR due to general (or other) from nd
When cash is exchanged due from and due to are eliminated
53
Purchases of capital assets by governmentalnfinds
Purchase accounted for as immediate expenditures (decrease available financial resources) not depreciable balance sheet assets
54
JE for purchase of asset by governmental fund
Dr expenditures - capital outlay
CR cash or vouchers payable
No asset recorded to appear on fund balance sheet
55
Governmental fund JE for sale of asset
Dr cash
CR other financing sources - proceeds from sale of general capital assets
Entire proceeds recognized as inflow of resources
56
Options for recognizing expenditures for materials and supplies in government type finds
Purchases method (expenditure when purchased)
Consumption method (expenditure when consumed)
57
Consumption method for inventories and prepayments
Recognized materials and supplies as assets when purchased and expenditures when consumed
58
Consumption method JE- recording purchase
Dr supplies inventory
CR cash or vouchers payable
59
Consumption method JE- to record supplies used
DR expenditures - supplies
CR supplies inventory
for Government wide just need to adjust expenditure - supplies to Supplies expense
60
Purchases method for inventory and prepayments
Purchases of supplies recorded as expenditures when purchased
Requires year end adjustment to report inventory remaining on balance sheet
61
Purchases method JE- purchase of supplies
Dr expenditures -supplies
CR cash or accounts payable
62
Purchase method JE- year end adjustment for remaining inventory
Dr supplies inventory
CR fund balance non-spendable
(Readjusted at the end of every year based on change from previous year, not whole amount)
no government0wide adjustment required
63
Purchase method JE- year end adjustment for remaining inventory
Dr supplies inventory
CR nonspendable fund balance
(Readjusted at the end of every year)
64
Fund accounting for prepaid services
Generally purchases method used and prepaid amounts considered insignificant (no year end adjustment made)
65
Warrant
An order, drawn by the appropriate authority, requesting payment of a specified sum of money to a particular person or organization
Purpose to prevent unauthorized payment
No journal entry recorded
66
Actuarial treatment of differences between projections and actual experiences
GASB requires actuaries to defer and amortize differences when they calculate net pension and OPEB liabilities
This eliminates short term fluctuation
67
Reporting deferred fluctuations in post employment benefit liability
Reported as deferred outflows and inflows
68
Governmental fund expenditure thpes
Current operating item
Capital asset acquisition
Debt service
69
Short term liabilities (receivables) in governmental funds
Due from
Due to
70
Long term liabilities (receivables) in governmental fund
Not recorded!!
Movement of cash recorded as:
Advance from
Advance to
71
Expenditures
Used in modified accrual accounting (Governmental Funds)
Fund liabilities liquidated with current resources / decreases in net financial resources not resulting from transfers or refunds
Decrease net current financial resources
72
Expenses
Used in accrual accounting (government wide)
Costs expired or consumed during a period
cost in net economic resources
73
Net financial resources
= Current financial resources - expenditures (or claims for payment)
74
When to recognize expenditures under modified accrual accounting
Recognize in period when paid from current financial resources
75
What expenditures require special recognition approaches
- Materials/supplies/prepaid items
- debt service expenditures on LT debt
- pensions, claims & judgements, compensated absences
- capital leases
76
Modified accrual accounting for general operating costs
recognize in fund accounts in period paid from financial resources
can accrue future payable less than a due less than a year from period incurred
77
Modified accrual accounting for operating cost payables due a year or more after they are incurred
Goes on the schedule of LT obligations
must bring into government wide financial statements via adjustments
recognized in the fund in period when opaid
78
Modified accrual accounting for compensation expenditures
Recognized in period earned by the employee IF paid from financial resources
no encumbrance recorded for recurring expenditures like payroll
79
Modified accrual accounting for compensation expenditures to be paid in the future
recognize in period paid, no fund payable entry made in current period
80
Compensation entry adjustment from fund to government-wide
Adjust expenditure to expense and add entry for any wages payable in future period (DR wages and salary expense, Cr wages payable)
81
Modified accrual accounting for compensated absences
Realized on fund accounts if will be paid from current financial resources, otherwise recognize in period when paid
no payable accrued for future period payments (on schedule on LT liabilities)
82
Compensated absences
Earned in one period but not paid until several periods later - paid out based on salary/ wage in effect when the absence occurs
83
Compensated absence entry adjustment to government wide
Just adjust expenditure to expense
if any due for payment in future period add payable (Dr Wages and salary expense - compensated absence, cr wages payable)
84
Modified accrual accounting for vacation leave
Recognized in period paid. NOT in current period unless paid from current financial resources
85
Vacation leave not taken in period earned
no entry in fund accounting. Adjusting entry for government wide accounting to incur expense and wages payable
86
Modified accrual accounting for sick leave
Recognize current payments from financial resources
recognizes liability ONLY if it is probable that the employer will compensate employees for unused leave at their termination or retirement (expected to pay out with current resources)
87
Accounting for sick leave that does not vest
no payable recorded even in government-wide financials
88
vested amounts of sick leave
only recognize anything paid with current financial resources in fund accounting
in government accounting recognize long term payable where applicable
89
sick leave not paid in current period & not vested
no entries in fund or government-wide
90
Types of sabbatical leave
- approved activities: enhance job-related skills (expenditure recognized during period of leave)
- compensated unrestricted time off (expense recognized during period leave is earned)
91
Accounting for approved activities sabbatical
Modified accrual - entry when leave is taken, no entry when accrued
DR expenditure- sabbatical leave
CR cash
only adjustment for government wide is expenditure to epense
92
Accounting for unrestricted time off
no fund JE when accrued, adjusted on to government-wide statements as expense and payable when accrued
93
modified accrual accounting for Government contributions to pensions
recognize expense for amount paid from current financial resources, only record a payable if short term (paid with current financial resources)
94
Government-wide accounting for pension contribution
Full pension accrual
DR Pension Expense
DR OCI - Loss
Cr pension liability
Cr OCI - Prior service costs
Cr - cash
95
Modified accrual accounting for claims and judgements
recognize any portion of liability paid with current financial resources
liability not accrued for any outstanding balance
96
Government-wide accounting for claims and judgements
Liability accrued if probable that liability exists by balance sheet date and loss can reasonably be estimate
recognize full expense and present value of structured settlements
adjusting entry adjusts expenditures to expense
97
structured settlements
payments on fixed- determinable dates
98
what method is required for government-wide accounting for supplies inventory
Consumption method
if funds use consumption method no AJE is necessary for purchases
99
Consumption method for supplies inventory year end adjustment
Still needed to convert what balance is for in accounts
DR Fund balance -unassigned (end of year inventory amount)
Cr Fund balance -non spendable
100
Accounting for prepayments in a governmental fund
May use consumption or purchase method BUT if services extend over more than one accounting period do not allocate among accounting periods. unused portion of insurance policy for multiple years reported as a current asset
government-wide must used consumption method
101
What is the GASB standard for reporting expenditures from governmental funds for employee pension benefits and retiree health care benefits?
expenditures should be equal to (a) the amount contributed by the employer to the plan and (b) the year-to-year change in the amount normally expected to be liquidated with available financial resources.
102
Prepayments modified accrual EOY journal entry under consumption method
DR fund balance - unassigned (EOY Prepaid balance)
Cr Fund balance -non spendable
No EYO fund entry under purchases method
103
revenue recognition for non-exchange expenditures
Recognize when:
- recipient has satisfied all eligibility requirements
- when revenue is available for expenditure
104
JEs when grant is approved for future distribution
No expenditure or liability recognized until distribution
105
JEs from grantor when payment of grant is made on approval
As long as recipient is eligible to use the funds
DR expenditure (modified) or expense (accrual)
Cr cash
106
Accrual of grant payable
only accrue under modified accounting if payable within one year
book current and future short-term distributions. do not book long-term distributions
107
Grantee entry for grant received with eligibility requirements not met
Dr Cash
CR deferred revenue - grant
(in a special revenue fund)
108
Expenditure from grant fund
expenditure recognized and amount from deferred revenue-grant is moved to revenue
DR Expenditure or Expense - Grant
Cr Vouchers payable
Dr Deferred Revenue Grant
CR revenue-Grant
109
Categories of interfund activity
Reciprocal (purchase from internal service fund, short term loans receivable, long term loans receivable)
Non-reciprocal (transfer to establish internal service fund, interfund reimbursements)
