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Becker - FAR 2013 > F8 - Governmental Accounting > Flashcards

F8 - Governmental Accounting Flashcards

1
Q

Name the primary authoritative body for GAAp for governmental entities.

A

Governmental Accounting Standards Board (GASB)

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2
Q

What are the three accounting themes addressed by governmental accounting?

A

~Fund structure

~Fund accounting

~External reporting

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3
Q

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

A

~Governmental

~Proprietary

~Fiduciary

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4
Q

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

A

Fund accounting principles are defined by:
~Measurement focus (how transactions are recognized)

~Basis of Accounting (when transactions are recognized)

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5
Q

What are the objectives of external reporting?

A

~Operational accountability

~Fiscal accountability

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6
Q

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

A

~Operational accountability: Government-wide finanicial statements

~Fiscal accountability: Fund financial statements

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7
Q

Name each governmental fund type.

A 
G     General Fund
R     Special Revenue Funds
S     Debt Service Funds
P     Capital Project Funds
P     Permanent Funds
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8
Q

What are the fund accounting principles applicable to governmental funds?

A

Measurement focus: Current financial resources

Basis of Accounting: Modified accrual

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9
Q

What specialized accounting practices are followed by the governmental funds?

A

Budgetary Accounting
Activity (Actual) Accounting
Encumbrance Accounting

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10
Q

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

A

Non-spendable: Resources that are not available to be spent (e.g., inventories).

Restricted: Resources that are constitutionally, legislatively, or otherwise externally limited as to use.

Committed: Resources that are internally limited as to use by the governments highest level of decision-making authority.

Assigned: Resouces intended to be used by the government for specific purposes whose constraints do not rise to the level of restricted or committed.

Unassigned: Residual classification of equity that represents resources that are the least limited as to use.

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11
Q

Name each proprietary fund type.

A

S Internal Service Funds

E Enterprise Funds

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12
Q

What are the fund accounting principles applicable to proprietary funds?

A

Measurement focus: Economic resources

Basis of Accounting: Full accrual

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13
Q

Name each fiduciary fund type.

A

P Pension (and other employee benefit) Trust Funds

A Agency Funds

P Private-Purpose Trust Funds

I Investment Trust Funds

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14
Q

What are the fund accounting principles applicable to fiduciary funds?

A

Measurement Focus: Economic resources

Basis of Accounting: Full accrual

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15
Q

Distinguish between alternative measurement focuses.

A

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 Resources (SE PAPI)
~Fixed assets are recorded
~Noncurrent liabilities are recorded

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16
Q

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

A

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:
G     General Fund
R     Special Revenue Funds
S     Debt Service Funds
P     Capital Project Funds
P     Permanent Funds
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17
Q

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

A

~Measurable means reasonably estimable or of a known determined amount.

~Available means collectible within (generally) 60 days of year-end.

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18
Q

When are revenues recorded in governmental funds?

A

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

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19
Q

Define the different classifications of expenditures.

A

Expenditure classifciations include:

~Function (e.g., public safety)
~Organizational unit (e.g., police department, fire department, 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)

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20
Q

What is the journal entry to record the annual budget?

A

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 unexpended appropriations is a pure arithmetic sum of these two accounts.

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21
Q

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

A

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 unencumbered appropriations is the sum of the three accounts: Appropriations (credit), Expenditures (debit), and Encumbrances (debit).

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22
Q

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

A

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).

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23
Q

When are budgetary, actual, or encumbrance entries combined?

A 
NEVER
Budgetary, actual, and encumbrance transactions are always segregated on the books.  Do not net:
B     B
A     A
E     E

At the beginning of year: Book Budget

Throughout the year: Book Actuals, book Encumbrances

At year-end: Close the Budget, close the Actuals, close the Encumbrances

24
Q

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

A

Dr. Revenues – (Activity)
Dr. Unreserved fund balance – (Activity)
Cr. Expenditures – (Activity)
Dr. Appropriations – (Budget - Deficit)
Cr. Est. revenues – (Budget - Deficit)
Cr. Budgetary control – (Budget - Deficit)
Dr. Budgetary control – (Encumbrance)
Cr. Encumbrances – (Encumbrance)

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

25
Q

Journal entry to recognize supplies remaining at year-end.

A

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
Q

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

A
  1. Changes in fair value of hedging derivative instruments.
  2. Resources to be reported by a transferor govenement in a qualifying service concession agreement.
  3. Other deferred outflows/inflows of resources.
27
Q

What is the purpose of the general fund?

A

The general fund is created at the beginning of the governmental unit and it exists throughout the life of the 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
Q

What are the typical revenue sources of the general fund?

A

~Taxes (property taxes)

~Public safety and regulations (fines, inspection fees, etc.)

~Intergovenmental (shared revenues)

~Charges for services

~Other revenues (interest income)

29
Q

What is the purpose of the special revenue fund?

A

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
Q

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

A

~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 surrenderes as a result of illegal acts (e.g., Forfeiture Act)

31
Q

What is the purpose of the debt service fund?

A

~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 principle on long-term general obligation debt.

~Debt service funds pay GRSPP debt.

~Debt service funds do not pay SE PAPI debt.

32
Q

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

A

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
Q

What is the purpose of the capital project fund?

A

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
Q

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

A

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

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

35
Q

What is the purpose of the permanent fund?

A

Permanent funds are used to report resources taht are legally restricted to the extent that only earnings and not principle may be used for the purposes that support the reporting govenment’s programs.

36
Q

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

A

GRSPP Funds require:

~Balance Sheet

~ Statement of Revenus, Expenditures, and Changes in Fund Balance

37
Q

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

A

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

38
Q

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

A 
Revenues
(Expenditures)
=
Excess (Deficiency) of Revenus 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
Q

What is the purpose of the internal service fund?

A

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
Q

What are typical revenue sources for internal service funds?

A

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
Q

What is the purpose of the enterprise fund?

A

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
Q

What are typical revenue sources for enterprise funds?

A

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

Nonoperating Revenues
~Shared/grant revenues
~Investment income

43
Q

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

A

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

44
Q

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

A

Alternative Structures

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

or

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

45
Q

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

A 
Operating Revenues (Revenues by Major Source)
-Operating Expenses
= Operating Income (Loss)
\+-Nonoperating Revenues (Expenses)
= Income or Loss Before Contributions and Transfers
\+-Capital Contributions
\+-Transfers Out
= Change in Net Position
46
Q

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

A

~Cash flows from operating activities
~Cash flows from noncapital financing activities
~Cash flows from capital financial activities
~Cash flows from investing activities

47
Q

What is the purpose of the pension trust fund?

A

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

48
Q

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

A

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
Q

What is the purpose of the agency trust fund?

A

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
Q

What is unique about agency fund revenues and expenses?

A

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

51
Q

What is the purpose of the private purpose trust fund?

A

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 one of the following: specific individuals, private organizations, and other governments.

52
Q

What is the purpose of the investment trust fund?

A

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
Q

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

A

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
Q

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

A

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

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
Q

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

A

Additions
(Deductions)
= Changes in Net Position

Becker - FAR 2013 (10 decks)

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