Chapter FAR 8-2: Modified Accrual Accounting Flashcards Preview

FAR CPA Review - (Becker, Roger, Wiley CPA Excel, NINJA) > Chapter FAR 8-2: Modified Accrual Accounting > Flashcards

Flashcards in Chapter FAR 8-2: Modified Accrual Accounting Deck (33):
1

What are the sources of revenues for governmental entities?

Taxes - income taxes, sales taxes

Taxes - levies property taxes, levy real estate taxes

Charging/imposing fins and penalties

2

What are the different types of "other financing sources" for governmental entities?

Debt proceeds (bonds and notes)

Inter-fund transfers (i.e. transfer money to a different fund).

3

Revenues for government entities comes in 4 types, what are they?

Answer:

1) Derived tax revenues
2) Imposed non-exchange revenues
3) Government mandated non-exchange transaction
4) Voluntary non-exchange transactions

4

What is derived tax revenue?

Government imposed taxes on or derive from exchange transactions.

Good example: Sales tax, income tax, hotel tax

5

What is Imposed non-exchange revenues?

Imposed non-exchange revenues = They're like fines/penalties or taxes on wealth like (property taxes).

6

What is government mandated non-exchange revenues?

Government mandated non-exchange revenues = High-level government gives money to another government entity to perform a certain activity.

Example: State government gives funding money to county or city government to clean up the beach or build a new road or help the environment.

It can also be low-level government meets requirements in order to get the funding to do something. The revenues here must be measurable and available.

Example: County receive money because it is located next to a landfill and used the money to convert the landfill into a geo-thermal plant to power homes in the area.

7

What is voluntary non-exchange transactions?

Government gets money without giving anything back in return (in same $$ value)

Revenues are recognized here when government meet requirements and the revenues are measurable and available.

8

What is modified accrual?

It's when governmental funds recognize revenue when it is measurable and available (usually withing 60 days after year-end, fiscal-year-end, or after end of a period).

Modified accrual = NOT commercial-basis accrual accounting.

Modified Accrual focuses on:
1) Current financial resources (current assets, current liabilities only; No long-term assets (no report depreciation expense) No long-term debt)
2) Meeting legal requirements
3) Not focus on making a profit, matching principle on expenses to revenues, income statement.
4) Does not report "Expenses" on its financial statements. It uses expenditures.

FYI - accrual accounting = (1) Revenues are recorded when earned (not receive actual cash). (2) Expenses are recorded when occurred (not when paid)

9

What are the items that are deemed available and measurable a the time a related event occurs:

Billed / recorded
Received
Earned

Billed / recorded = Revenue
>> Here: it's imposed non-exchange revenues that involves charging real estate/property taxes; Charging fines; Charging penalties

Received = revenue
Here: it's derived tax revenue involving income taxes; sales taxes

Earned = revenue
* Deferred revenue when collected
* Real estate taxes paid in advance
* Restricted grants (earned when spent the funds)

10

What are the journal entries to open the first balance for

Estimated revenues
Appropriations
Budgetary Fund balance??


(Note: this is when you record the budget on the first day of the government's fiscal year of operations)

There are two Journal entry sets for the following situations:

(1) Estimated revenues more than Appropriations

Dr. Estimated revenues
Cr. Appropriations
Cr. Budgetary fund balance

(2) Appropriations more than estimated revenues

Dr. Estimated revenues
Dr. Budgetary fund balance
Cr. Appropriations

11

What is encumbrance?

What is appropriation?

What is expenditure?

What is budgetary fund balance?

Encumbrance = records purchase order. It's used when a government sends a request/order to buy something and receive the good at a later date.

Appropriation: money set aside int he budget to spend something at a later date.

Expenditure = actual spending money to pay down a cost for operating transactions and capital transaction.
a) Operation transactions = ex. pay salaries/wages to police officers
b) Capital transactions = buying equipment, machines, building, facility, etc.
c) Pay money to pension fund trust fund to pay down the costs to maintain it.

Budgetary fund balance = it's an account or controlling spending.

12

What is the journal entry to record

accrual of real property taxes levied

and

provide the estimated amount of uncollected accounts?

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

Note: Allowance for uncollectible taxes receivable does NOT deal with "uncollectible accounts receivable" or "bad debt expense."

Allowance for uncollectible axes receivable REDUCES revenue to the MEASURABLE and AVAILABLE AMOUNT.

13

What is journal entry for:

Collecting property taxes?

Dr Cash
Cr Real property taxes receivable - current

14

What is the journal entry to reclassify receivables as delinquent?

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

15

What is journal entry for:

Reclassify allowance for uncollected taxes to delinquent and adjust revenues to accrue available amounts?

Dr: Revenues
Dr: Allowance for uncollected taxes - current
Cr: Allowance for uncollectible taxes - delinquent


Note:
Debit revues = reduce revenue
Debit allowance for uncollected taxes -current = reduce allowance for uncollected taxes

Credit allowance for uncollectible taxes - delinquent = create or increase "allowance for uncollectible taxes - delinquent"

16

What is the journal entry to record an expenditure?

Debit: Expenditure
Credit: Vouchers payer or Cash

17

How to calculate the remaining amount available for future use when you have:

Appropriations
Encumbrances
Expenditures
Vouchers payable

Appropriations
- Encumbrances
- Expenditures
----------------------
Remaining available appropriations for other government spending items

Note: do not calculate the vouchers payable because the vouchers represent expenditures not yet paid out yet. So, they are not minus out to determine the available funds to be used by government entity.

18

What is inter-period equity?

"state at which current-year taxpayers have provided adequate resources to pay for the cost of current-year services. Another way to look at it is as a state of equilibrium in which a government is neither deferring costs to the future nor using accumulated resources to provide current-period services. It is important to note that for financial reporting purposes, inter-period equity is a relevant metric to assess accountability"

Website: http://gasb.org/cs/
ContentServer?c=
GASBContent_C&pagename=
GASB%2FGASBContent_C%2FUsersArticlePage&cid=1176156731381

Another definition

"The idea is that governments should raise enough revenue to cover all services for a given period, generally a year. Services should not be
provided that will put a burden on future taxpayers or generations."

Link: http://webfinder.hol.es/look/Financial_Reporting_Terms/
Definition_And_Elements_Of_Financial_Reporting_glossary_/
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vZ292dDQ5MC9DMS1nbG9zc2FyeS5odG1s_blog

Other words: "Balance budget" >> where the government has adopted a balance budget to ensure not to spend too much taxpayer money.

19

What is the journal entry to record the first balance for

Estimated Revenues,
Appropriations,
and
Transfers in and transfers out

in a budgetary fund balance that has a deficit??

For when budgetary fund balance has a surplus??

Negative budgetary fund balance (a deficit)
---------------------------------------------------------------
Dr: Estimated Revenues control
Dr. Estimated transfer from other funds (transfer-in)
Dr. Budgetary fund balance (negative balance / a deficit)
Cr: Appropriations control
Cr: Estimated transfer to other funds (transfer out)


Positive budgetary fund balance (a surplus)
--------------------------------------------------------------
Dr: Estimated Revenues control
Dr. Estimated transfer from other funds (transfer-in)
Cr: Appropriations control
Cr: Estimated transfer to other funds (transfer out)
Cr. Budgetary fund balance (positive balance / a surplus)

20

What is the journal entry to issue a purchase order?

Dr: Encumbrance
Cr: Reserve for encubrance

21

What is the journal entry to CLOSE

Estimated Revenues,
Appropriations,
and
Transfers in and transfers out

in a budgetary fund balance that has a deficit??

For when budgetary fund balance has a surplus??

Negative budgetary fund balance (a deficit)
---------------------------------------------------------------

Dr. Appropriations control
Dr. Estimate transfers TO other funds (transfer out)
Cr. Estimated Revenues
Cr. Estimate transfer FROM other funds (transfer in)
Cr. Budgetary fund balance (negative)


Positive budgetary fund balance (a deficit)
---------------------------------------------------------------

Dr. Appropriations control
Dr. Estimate transfers TO other funds (transfer out)
Dr. Budgetary fund balance (positive)
Cr. Estimated Revenues
Cr. Estimate transfer FROM other funds (transfer in)

22

Define the following classification used in government accounting:

Object
Program
Function
Activity

Object = most specific classification and deals with chart of accounts titles like salaries and wage payable, estimate revenue control account, etc.

Program = groups activities, preparations, organizations unites that are directed to achieve a specific purpose/objective.

Function = Groups activities to achieve a MAJOR service or REGULATORY responsibility (to implement a law)

Activity = Line of work by an organizational unit. It's used for data to calculate expenditures per unit of activity.

23

Lay out the classification hierarchy in government accounting.

Program / function (on top) = group of different services
|
|
Organization uni: carry out governmental activity
|
|
Activity: specific set of expenditures
|
|
Object: specific account category (tax revenues, salaries payable, etc.)

24

If expenditures are extended over period of time, how are they handled?

Allocated between or among accounting periods

or

Allocated for expenditures during periods of acquistion

25

In government accounting, what is deferred revenue?

Deferred revenue is where

a) Government collects taxes before the period in levying it
b) Government recognizes a receivable before levying a tax for this receivable

26

What are the journal entries to close the balance for

Estimated revenues
Appropriations
Budgetary Fund balance at end of year??


There are two Journal entry sets for the following situations in closing:

(1) Estimated revenues more than Appropriations

Dr Appropriations
Dr Budgetary fund balance
Cr Estimate revenues

(2) Appropriations more than estimated revenues

Dr. Appropriations
Cr. Estimate revenues
Cr. Budgetary fund balance

27

CPA exam tip:

What does "effect on excess revenues over expenditures" on the statement of revenues, expenditure, and changes in fudn balance?

This means what can cause

the excess revenue to go UP or go down.

For example:
>> Increase excess revenue: Expenditures are less. Increase different tax revenues or even revenues from a lot of penalties/fines charged at people.

>> Decrease excess revenue: More expenditures on purchases, paying down bills, paying government workers.

28

Does proceeds of capital asset sales do get reported as revenues or expenses on the General Funds Statement of Revenues, Expenses, and Changes in Fund balances?

Please explain why.

Proceeds on selling capital assets do not get reported on as Revenues or expenses on Statement of Revenues, Expenses, and Changes in Fund balance for General Fund.

This is because General Fund's Statement of Revenues, Expenses, and Changes in fund balance usually reports:

Revenues from tax source revenues, fines/penalties.
Expenses = expenditures on items to pay for current operating costs in the current period like street maintenance, pay wages to officers/fire fighters, government workers, etc.

29

General Fund.

What are the most common expenditures for general fund?

General government = administrative functions, i.e. city manager, fiance., etc.
Public safety: police dept, fire dept, jail, and building inspections department
Culture and recreation = parks, libraries, etc.

30

Which fund does not report encumbrances?

Debt service fund
and
Permanment fund

31

What is the journal entry when a government unit actually paid money in receiving an item from a purchase order?

Debit: Reserve for encumbrance
Credit: for Encumbrance
Note: reverse entry on the encumbrance.

Debit: Expenditure
Credit Vouchers payable or cash
Note: record actual expenditure/spend money on paying the purchase order when receive the goods.

32

What is the journal entry for capital lease equipment for a capital projects fund?

Dr: expenditures
Cr: Other finance sources

33

Journal entry what type of amount on the Fixed Assets in the

Government Wide Financial Statements.

Manner acquired --> Amount Type Required
Purchase = Cost in buying an item
Construction = Cost to construct
Capital lease = PV on lease payments
Donated item = FMV on ite
Forfeiture = Lower of cost (to acquire) or market price

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