Ch. 2

Question 1

What is a component unit?

Answer 1

Part of a larger government

Question 2

What are the 3 categories of activity used in fund basis?

Answer 2

1) Governmental
2) Proprietary
3) Fiduciary

Question 3

What statements does GASB require for governments?

Answer 3

Fund financial statements and Government wide statements

***Each fund gets its own balance sheet and statement of revenues/expenditures

Question 4

What basis of accounting is used by governmental funds?

Answer 4

Modified Accrual

Question 5

What basis of accounting is used by proprietary/fiduciary funds?

Answer 5

Accrual Accounting

Question 6

Why do governments use funds other than the general fund?

Answer 6

To show compliance, segregates the funds to help show it is being used for a specific purpose

Compliance with state/federal laws

***GASB does NOT require the use of other funds

Question 7

What is the formal definition of a fund?

Answer 7

A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations

Question 8

What is economic resources measurement focus? Which type of funds use this?

Answer 8

Take account of transactions and events that affect all the economic resources available to the activity – financial and capital.

This is used by both proprietary and fiduciary funds.

Question 9

What is current financial resources measurement focus ? Which type of funds use this?

Answer 9

Recording the inflows and outflows of financial (near-term) assets and distinctly has a budget orientation.

This is used by the governmental type funds.

Question 10

When are revenues/expenses recognized when using accrual accounting? Which funds use this?

Answer 10

Revenues are recognized in the period that they are earned and measurable

Expenses are recognized when assets are consumed or when costs have expired.

Proprietary and fiduciary funds use accrual basis of accounting.

Question 11

When are revenues/expenditures recognized when using modified accrual accounting? Which funds use this?

Answer 11

Revenue is recognized when its measurable and available.

Expenditures are recorded when a liability is incurred.

This is used by governmental-type funds.

Question 12

What does available mean?

Answer 12

Collectible within the current period or soon enough thereafter so it can be used to pay bills of the current period.

Most pills are paid within 30 days

***No more than 60 days during the year, or after year end

Question 13

Why are governments fundamentally different than businesses?

Answer 13

They are guaranteed their revenue.

Ex. Property Taxes. Can put a lien on a home, earn interest/penalties for late payments.

Question 14

What are expenses?

Answer 14

Costs recorded in proper period, does not matter when paid.

Question 15

What are expenditures?

Answer 15

Funds are designed to report only current financial resources (not long-term).

Outflows.

Question 16

What are the 3 types of outflows of resources?

Answer 16

1) Current operating items
2) Capital asset acquisitions
3) Debt service

Question 17

Why are governments required to provide fund statements and government wide statements?

Answer 17

Government fund statements only show current assets/current liabilities. There is a lot of information missing from these statements.

Question 18

What is the difference between a loan and a transfer?

Answer 18

A loan will be repaid. Due to/Due from.

A transfer is not repaid. Considered other financing source.

Question 19

What method is used to prepare cash flow statements?

Answer 19

GASB requires use of the direct method.

Question 20

What are the 3 categories of a cash flow?

Answer 20

1) Operating
2) Investing
3) Financing

Question 21

What is the general fund?

Answer 21

A residual fund used to account for and report all financial resources not accounted for and reported in some other fund

***every government has a general fund

Question 22

What is the special revenue fund?

Answer 22

Used to account for the proceeds of specific revenue sources that are restricted or committed to spending for specified purposes other than debt service or capital projects.

Question 23

What is the capital projects fund?

Answer 23

Used to account for and report on financial resources that are restricted or otherwise limited to spending for capital outlays, including the acquisition or construction of capital facilities and other capital assets.

Question 24

What is the debt service fund?

Answer 24

Used to account for and report on financial resources that are restricted or otherwise limited too spending for principal and interest on general long-term debt

Question 25

What is the permanent fund?

Answer 25

Used to report resources that are legally restricted so that only the earnings generated by the principal, and not the principal itself, may be used to support programs that benefit the government or its citizens

Question 26

What are enterprise funds?

Answer 26

used to account for any activity whose products or services are sold for fee to external users, such as the general public

Question 27

What 3 criteria must be met to be considered a enterprise fund?

Answer 27

1) The activity is financed with debt that is secured solely by a pledge of the net revenues from the activity’s fees and charges 2) Laws or regulations require that the costs of providing services, including capital costs, be recovered through fees and charges, rather than with taxes 3) The activity’s pricing policies set fees and charges that are designed to recover its costs, including capital costs

Question 28

What are internal service funds?

Answer 28

Used to account for providing goods or services within the reporting government or to other governments, on a user-charge, cost-reimbursement basis

Question 29

What are pension trust funds?

Answer 29

Used to account for resources controlled by the governmental unit and administered through trusts or equivalent arrangements for members and beneficiaries of public employee pension plans

Question 30

What are investment trust funds?

Answer 30

Hold resources of an external investment pool or individual investment account managed by a sponsoring government and held in a trust

Question 31

What are private-purpose trust funds?

Answer 31

used to report all fiduciary activities for which the governmental unit controls the assets that are not required to be reported in pension or investment trust funds

Question 32

What are custodial funds

Answer 32

Used to report fiduciary activities that are not required to be reported in one of the other three types of fiduciary funds