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Flashcards in Becker - Module 8 Deck (55):
1

Name the primary authoritative body for GAAP for governmental entities

Governmental Accounting Standards Board (GASB)

2

What are the three accounting themes addressed by governmental accounting?

- Fund structure
- Fund accounting
- External reporting

3

Identify the major categories of funds used by state and local governmental units

- Governmental
- Proprietary
- Fiduciary

4

What terms define the manner and timing of transaction recognition in governmental fund accounting?

Fund accounting principles are defined by:
- Measurement Focus (how transactions are recognized)
- Basis of Accounting (when transactions are recognized)

5

What are the objectives of external reporting?

- Operational accountability
- Fiscal accountability

6

What types of external reports meet the accountability objectives of government?

- Operational accountability: government-wide financial statements
- Fiscal accountability: fund financial statements

7

Name each governmental fund type

General Fund
Special Revenue Funds
Debt Service Funds
Capital Projects Funds
Permanent Funds

8

What are the fund accounting principles applicable to governmental funds?

Measurement Focus: Current financial resources
Basis of Accounting: Modified accrual

9

What specialized accounting practices are followed by the governmental funds?

Budgetary Accounting
Activity (Actual) Accounting
Encumbrance Accounting

10

Name and define the five classifications of fund balances used by governmental fund types

1) Non-spendable: resources that are not available to be spent (e.g. inventories)
2) Restricted: resources that are constitutionally, legislatively, or otherwise externally limited as to use
3) Committed: resources that are internally limited as to use by the governments highest level of decision-making authority
4) Assigned: resources intended to be used by the government for specific purposes whose constraints do not rise to the level of restricted or committed
5) Unassigned: residual classification of equity that represents resources that are the least limited as to use.

11

Name each proprietary fund type

Internal Service Funds
Enterprise Funds

12

What are the fund accounting principles applicable to proprietary funds?

Measurement Focus: Economic resources
Basis of Accounting: Full accrual

13

Name each fiduciary fund type

-Pension (and other employee benefit) Trust Funds
-Agency Funds
-Private-Purpose Trust Funds
-Investment Trust Funds

14

What are the fund accounting principles applicable to fiduciary funds?

Measurement Focus: Economic resources
Basis of Accounting: Full accrual

15

Distinguish between alternative measurement focuses

Current Financial Resources (GRSPP)
- no fixed assets are recorded; capital outlays displayed as expenditures
- no depreciation
- no noncurrent liabilities are recorded; debt proceeds displayed as resource inflows
- principle payments displayed as an expenditure
- premiums and discounts on debt are not amortized; they are included as an increase or decrease of debt proceeds

Economic Resouces (SE PAPI)
- fixed assets are recorded
- noncurrent liabilities are recorded

16

Define modified accrual and list the funds that use it as a basis of accounting.

Modified accrual:
Revenues should be recognized when measurable and available; expenditures are generally (with the exception of interest expenditures) recognized when fund liability is incurred.

Funds using modified accrual basis:
- General Fund
- Special Revenue Funds
- Debt Service Funds
- Capital Project Funds
- Permanent Funds

17

What do the terms "measurable" and "available" mean in the context of the modified accrual basis of revenue accounting?

- Measurable means reasonably estimable or of a known determined amount.
- Available means collectible within (generally) 60 days of year-end.

18

When are revenues recorded in governmental funds?

Governmental funds record revenues when measurable and available. This concept applies to accrual of different types of revenues depending on their character.

Accrue when:
Billed/Recorded (imposed non-exchange transactions)
- Real estate taxes (due)

Received (derived non-exchange transactions)
- Income taxes
- Sales taxes

Earned (government mandated and voluntary non-exchange transactions)
- Real estate taxes paid in advance
- Restricted grants

19

Define the different classifications of expenditures

Expenditure classifications include:
- Function (e.g. public safety)
- Organizational unit (e.g. police dept, fire dpt, etc)
- Activity (e.g. drug enforcement, highway safety patrol)
- Character (e.g. current, capital outlay, debt service, intergovernmental)
- Object (e.g. personal services, building occupancy, insurance)

20

What is the journal entry to record the annual budget?

Dr. Estimated revenues
Cr. Appropriations
Cr. Budgetary control

Actual expenditures have a natural debit balance. Appropriations to which those expenditures are compared have a natural credit balance. Computation of unexpected appropriations is a pure arithmetic sum of these two accoutns.

21

Define encumbrance and give the journal entry to recognize a purchase order on supplies

Encumbrance: A commitment related to an unperformed contract for goods or services (generally an open purchase order)

Dr. Encumbrance
Cr. Budgetary control

Encumbrances have a natural debit balance. Appropriations, to which those encumbrances are compared, have a natural credit balance. Computation of unemcumbered appropriations is a pure arithmetic sum of these two accounts. Computation of unexpended and unencumbered appropriations is the sum of the three accounts: Appropriations (credit), Expenditures (debit), and Encumbrances (debit)

22

What journal entries are made to record the liabilities incurred associated with previously encumbered funds?

Expenditure of previously encumbered funds results in the following entries:

Dr. Expenditure
Cr. Accounts payable
Dr. Budgetary control
Cr. Encumbrance

The entries serve to reverse the full effect of the encumbrance entry and record the full amount of the expenditure (BAE - BAE)

23

When are the budgetary, actual, or encumbrance entries combined?

NEVER

Budgetary, actual, and encumbrance transactions are always segregated on the books. Do not net:

BAE - BAE

Beg of the year: book [B]udget
Through year: book [A]ctuals, book [E]ncumbrances
At year end: close the [B]udget, close the [A]ctuals, close the [E]ncumbrances

24

What are the closing budget, activity, and encumbrance journal entries?

Activity:
Dr. Revenues
Dr. Unreserved fund balance
Cr. Expenditures

Budget (deficit):
Dr. Appropriations
Cr. Estimated revenues
Cr. Budgetary control

Encumbrance:
Dr. Budgetary control
Cr. Encumbrance

At the beginning of the next year, the above encumbrance entry is reversed. The entry will keep the Budgetary Control intact in order to account for resources spent in the next year that would have been budgeted in the current year.

25

Journal entry to recognize supplies remaining at year-end

Purchase method:
Dr. Supplies on hand inventory
Cr. Fund balance, non-spendable
This journal entry indicates that these supplies are not available spendable resources.

Consumption method:
No entry may be needed as supplies were debited to inventory and then recognized as expenditures as they were used. A corresponding entry changing the related non-spendable classification of fund balance should have been done as each use of inventory was recorded.

26

List the types of transactions that qualify for treatment as deferred outflows or resources (reported after assets) or deferred inflows of resources (reported after liabilities)

1) Changes in fair value of hedging derivative instruments
2) Resources to be reported by a transferor government in a qualifying service concession agreement.
3) Other deferred outflows/inflows of resources.

27

What is the purpose of the general fund?

The general fund is created at the beginning of the government unit and it exists throughout the life of that unit. The general fund accounts for the general activities of a governmental unit that are not accounted for by any other fund.

The general fund is always a major fund.

28

What are the typical revenue sources of the general fund?

- Taxes (property taxes)
- Public safety and regulations (fines, inspection fees, etc)
- Intergovernmental (shared revenues)
- Charges for services
- Other revenues (interest income)

29

What is the purpose of the special revenue fund?

Special revenue funds account for revenues and expenditures that are restricted or committed for specific purposes. The life of a special revenue fund may be limited or unlimited.

30

What are the typical revenue sources of a special revenue fund?

- Intergovernmental revenues (e.g. sales taxes or gasoline taxes restricted for use)
- Intergovernmental revenues (e.g. grants and other financial assistance provided for a specific purpose)
- Specific fees (e.g. parking fees, museum admission fees, etc.)
- Seizure of assets surrendered as a result of illegal acts (e.g. Forfeiture Act)

31

What is the purpose of the debt service fund?

- The debt service fund is created to account for the accumulation of restricted, committed, or assigned resources (cash and investments) for the payment of currently due interest and principal on long-term general obligation debt
- Debt service funds pay GRSPP debt
- Debt service funds do not pay SE PAPI debt

32

What are the typical components of revenue and other financing source classifications for debt service funds?

Revenues:
- Investment income
- Taxes levied specifically for debt repayment

Other financing sources:
- Transfers from other funds to meet bond indenture requirements
- Debt proceeds associated with refunding debt

33

What is the purpose of the capital project fund?

Capital projects funds are established to account for resources restricted, committed, or assigned for the construction or purchase or leasing of significant fixed assets used by the governmental (GRSPP) funds. Capital projects funds are not used for proprietary (SE) or fiduciary (PAPI) funds.

34

What are the typical components of revenue and other financing source classifications for capital project funds?

Revenues:
- Investment earnings
- Tax revenues specifically levied to fund capital improvement

Other financing sources:
- Debt proceeds used to fund construction
- Transfers from other funds

35

What is the purpose of the permanent fund?

Permanent funds are used to report resources that are legally restricted to the extent that only earnings and not principal may be used for purposes that support the reporting government's programs

36

What are the required fund financial statements for the individual governmental fund types?

GRSPP Funds require:
- Balance Sheet
- Statement of Revenues, Expenditures, and Changes in Fund Balance

37

What is the basic structure of the balance sheet for the governmental funds?

Assets + Deferred Outflows of Resources = Liabilities + Deferred Inflows of Resources + Fund Balance

38

What is the basic structure of the statement of revenues, expenditures and changes in fund balance for the governmental funds?

Revenues
(Expenditures)
Excess (deficiency) of revenues over (under) expenditures
Other financing sources and uses
Special and Extraordinary items
Net change in Fund balance
Fund balance - Beginning of Year
Fund balance - End of Year

39

What is the purpose of the internal service fund?

Internal service funds are established to finance and account for services and supplies provided exclusively to other departments within a governmental unit or to other governmental units, typically on a cost-reimbursement basis.

Major fund reporting requirements do not apply to internal service funds.

40

What are typical revenue sources for internal service funds?

Operating Revenues:
Charges for services provided to other funds. (These charges are not transfers or other financing sources)

Nonoperating Revenues:
- Investment income
- Grant revenues

41

What is the purpose of the enterprise fund?

Enterprise funds are used for operations that are financed and operated in a manner similar to private business enterprises. Activities should be reported in enterprise funds if the activity is funded by debt secured by a pledge of net revenue from fees and charges, laws require that activity fees be recovered through fees, or fees are designed to recover costs.

42

What are typical revenue sources for enterprise funds?

Operating Revenues:
Charges for services (utility fees, patient fees, tuition, other exchange type fees)

Nonoperating Revenues:
- Shared/grant revenues
- Investment income

43

What are the required fund financial statements for the individual proprietary fund types?

SE funds require:
- Statement of Net Position
- Statement of Revenues, Expenses, and Changes in Fund Net Position
- Statement of Cash Flows

44

What are the alternative structures of the statement of net position for the proprietary funds?

Alternative Structures

Balance Sheet:
(Assets + Deferred Outflows of Resources) = (Liabilities + Deferred Inflows or Resources) + Net Position

or

Net Position:
(Assets + Deferred Outflows of Resources) - (Liabilities + Deferred Inflows of Resources) = Net Position

45

What is the basic structure of the statement of revenues, expense and changes in net position for the proprietary funds?

Operating Revenues (Revenues by Major Source)
Operating Expense
Operating Income (Loss)
Nonoperating Revenues (Expenses)
Income or Loss Before Contributions and Transfers
Capital Contributions
Transfers Out
Change in Net Position

46

What is the basic structure of the statement of cash flows for the proprietary funds?

- Cash flows from operating activities
- Cash flows from noncapital financing activities
- Cash flows from capital financing activities
- Cash flows from investing activities

47

What is the purpose of the pension trust fund?

Pension (ant other employee benefit) trust funds account for government-sponsored defined benefit and defined contribution plans and other employee benefits, such as postretirement health care benefits.

48

What are the unique note disclosures and required supplemental information reporting associated with pension funds?

Note disclosures:
- Plan description
- Contributions and reserves
- Risk concentrations

Required Supplementary Information
- Schedule of funding progress (last six years)
- Schedule of employer contributions (last six years)
- Notes to support the schedules

49

What is the purpose of the agency trust fund?

An agency fund collects cash to be held temporarily for an authorized recipient to whom it later will be disbursed. This recipient may be another fund or some individual or fund or even government outside of the reporting government.

50

What is unique about agency fund revenues and expense?

Agency funds do not report revenues and expense, only assets and liabilities.

51

What is the purpose of the private purpose trust fund?

The private purpose trust fund is the designated fund for reporting all other trust arrangements under which principal and income are for the benefit of the following: specific individuals, private organizations, and other governments

52

What is the purpose of the investment trust fund?

Investment trust funds account for external investment pools sponsored by a governmental entity.

Example: a state may act as the investment agent for counties and cities. The investments "external" to state government, those administered on behalf of the counties and cities, are reported in an investment trust fund.

53

What are the required fund financial statements for the individual fiduciary fund types?

Most PAPI funds require:
- Statement of Fiduciary Net Position
- Statement of Changes in Fiduciary Net Position (Note: Agency Funds [the "A" in PAPI] do not require this statement)

54

What is the basic structure of the statement of fiduciary net position for the fiduciary funds?

Net Position = (Assets + Deferred Outflows of Resources) - (Liabilities + Deferred Inflows of Resources)

Note: for fiduciary funds, there is no option to present a traditional balance sheet format in which asset accounts are displayed as equal to the sum of liability and equity accounts

55

What is the basic structure for the statement of changes in fiduciary net position for the fiduciary funds?

Additions
(Deductions)
= Changes in Net Position