Chapter 2 Flashcards
Use of funds in Govt. Accounting
Define the term “Fund” as used in Govt. Acct.
A fund is a fiscal and accounting entity that encompasses all the financial resources (assets, liabilities and residual equities). It exists for the purpose of carrying out specific activities/objectives in accordance with restrictions/limitations/regulations.
Purpose of fund accounting
ensures/facilitates budgetary and restriction compliance
3 Fund categories used in governmental accounting
- Governmental Funds - for day-to-day activities of govt.
- Proprietary Funds - providing goods/services for both internal depts. of govts. and external users (business-type activities).
- Fiduciary Funds - handling other people’s/govt’s money.
Economic resources measurement focus vs. current financial resources measurement focus. Which is used in each fund?
Governmental –> Current financial resources
Proprietary and Fiduciary –> Economic resources
Economic resource focus - deals with revenues, expenses and the making of a profit. It takes into account all the economic resources of the activity (financial and capital).
Current financial resources focus - focuses on the cash flows in and out of the activity. Only considers capital and debts to the extent they affect near-term inflows/outflows.
Govt. Funds basis of accounting and measurement focus
Current financial resources - near-term inflows and outflows. (Tax revenue, bond issues, capital acquisitions, etc.)
Modified accrual basis of accounting - record revenues when available and measurable and expenses when incurred if paid during the year or shortly after (30-90 days).
Basis of accounting used in each of the 3 major funds and their treatment of revenues and expenditures.
Accrual basis - Proprietary and Fiduciary
Modified accrual basis - Governmental
Accrual - revenues when performance obligations are completed (when earned), and expenses when resources are consumed or liabilities incurred.
Modified accrual - revenues when available and measurable. expenditures in the period in which services and goods are received and when liabilities are incurred** (**specific exceptions with liabilities that are not recognized until they come due for payment).
available - revenues collected during the current period/year or soon thereafter (30-60days)
List the 11 funds by category and know what each is used for
Governmental (GRSPP):
general funds, special revenue funds, debt service funds, capital projects funds, permanent funds.
Proprietary (PIE): Internal service funds and enterprise funds.
Fiduciary (PIP-C): pension trust funds, investment funds, private purpose trust funds and custodial (agency) funds.
Why are the no capital assets in governmental type funds?
Concerned with budgeting and current financial resource focus (inflows and outflows of financial resources). In fund accounting, capital assets may be bought and only accounted for as an outflow of resources.
In entity-wide statements, you can find the capital asset acquisition.
PIE funds purpose
Enterprise - account for resources to provide goods/services to external users. Services/goods are paid for mostly by user fees and charges.
Internal Service - account for resources to provide goods/services to internal users (within govt. units and other govts.) Cost-reimbursement basis.
Why do proprietary funds use full accrual accounting?
As funds accounting for business-type activities. It is important to have an understanding of the full cost of the activities (current/operating costs as well as capital costs).
Operating Costs + Capital Costs = Data to determine rates of user fees and charges.
Work out the MC questions on the book.
Answers: 12-30 b c c d a d c a b b c d d b c d d - LT liabilities are not reported in govt. funds d b
Work out Exercises 31-35 and Problems 44-45.
See solution manual for Ch 2
Skim the other questions in the chapter and their answers
Ch 2 Solution manual
