FAR Flashcards
(186 cards)
1
Q
How are changes in accounting principle applied?
A
Retrospective Application:
Prior Periods adjusted
Retained Earnings adjusted
Completed Contract to % Completion
Ex: LIFO to FIFO
2
Q
Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?
How would it be applied?
A
A change of principle.
Applied retrospectively.
3
Q
Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate?
How would this change be applied?
A
A change in accounting principle.
Applied retrospectively.
4
Q
How is a change in accounting estimate applied?
A
A change in accounting estimate is applied prospectively (going forward).
No backwards adjustment is made.
5
Q
Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate?
How would this change be applied?
A
Change in depreciation method would be a change in accounting estimate.
It is applied prospectively.
6
Q
How is a correction of an accounting error made?
A
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements.
The correction of the error must be included in the footnotes.
7
Q
What are the requirements for a prior period adjustment?
A
Effect is Material
Is identifiable in Prior Period
Couldn’t be estimated in Prior Periods
8
Q
How is a change from a non-GAAP accounting method to a GAAP method recorded?
A
It is treated as a correction of an accounting error.
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements
Correction of the error must be included in the footnotes
9
Q
How does an inventory error effect the financial statements?
A
Effect on Ending Inventory : Effect on Net Income
If one is overstated- both overstated. If one is understated- both understated.
Misstating inventory corrects itself after TWO periods.
10
Q
How is a change in entity recorded?
A
Applied retrospectively.
All prior periods presented for comparative purposes must reflect the change
Footnote disclosures must be made
Changing to Consolidated Statements
11
Q
What is a serial bond?
A
Any bond that matures in installments
12
Q
What is a term bond?
A
Any bond that matures on a single date
13
Q
What is a debenture bond?
A
A bond not secured by any collateral
14
Q
What is a sinking fund bond?
A
Cash is held in a sinking fund for repayment of bond at maturity
5 years of requirements and maturity details should be disclosed
15
Q
What is the formula to calculate proceeds of a bond sale?
A
Present Value of the principal payment at maturity+ Present Value of Interest Payments made
: Market Value of Bond Proceeds
16
Q
How is the present value of a bond calculated?
A
Step 1: PV of $1 @ Yield Rate (not Stated Rate)
x Bond Face Value
PLUS
Step 2: PV of an Ordinary Annuity of $1 for Term @Yield
x (Stated Rate x Face)
17
Q
Which costs are included in bond issuance costs? How are they recorded?
A
Include Engraving; Printing; Legal; Underwriter; Registration
Debited to a deferred charge account and amortized over life of Bond using S/L
Bond Proceeds - Bond Issuance Costs : Net Bond Proceeds
Time of amortization begins when issued
18
Q
How are bonds reported when classified as trading securities?
A
Reported at FMV with unreleased gains and losses being included in earnings
19
Q
How are bonds amortized under the interest method?
A
Both discount and premium amortization amounts increase each year
20
Q
Describe the book value method when converting from bonds to stocks.
A
No gain or loss recognized
APIC is the plug for the difference between the Bond’s Book Value and the Par Value of the Common Stock
21
Q
What is the stated rate for a bond?
A
Rate on the face of the bond
22
Q
What is the market rate on a bond?
A
Rate that bonds are currently selling for
23
Q
What happens when the bond’s market rate is greater than the stated rate?
A
Bond will need to sell at a discount in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for less than par value
24
Q
What happens when a bond’s market rate is less than the stated rate?
A
Bond will need to sell at a premium in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for more than par value
25
How does accrued interest on a bond affect the purchase price?
The total cash that seller receives will be MORE than they normally would (set aside any considerations for premium or discount; they are irrelevant for this point).
Basically; the purchaser of the bonds must give the bond issuer the amount of accrued interest up front.
26
When does interest expense start accruing on a bond?
When the bonds are issued
27
How is an interest payment on a bond calculated?
Cash for payment : Stated rate x Face amount
28
What amount of interest is expensed on a bond interest payment?
Interest expense : effective yield x carrying value
Any difference between expense and cash payment is applied as amortization against premium/discount
29
What are convertible bonds? Which recording method is used?
Bonds that can be converted to stock
Book value method used if no gain or loss
Market value method used if there is a gain or loss
30
How is the retirement of bonds recorded?
Gain or Loss is Ordinary
Extraordinary if both unusual and infrequent
31
When is a gain recognized in a debt restructuring?
If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized
32
What is the gain recognized under a settlement of debt?
Gain recognized:
Difference between cash paid and carrying amount of debt
Difference between non-cash asset given and re-valued at FMV and debt carrying amount
33
For a creditor; how is a loan impairment recorded?
If future cash flows discounted at loan's Effective Interest Rate are less than Carrying Value:
Effective Rate calculated using original rate; not modified rate
34
When is the fair value method used for recording interest in a separate company?
20% Ownership or Less
Accounted for as a purchase
If amount paid is less than fair value; results in a gain in current period
35
When is the equity method used when purchasing another company's stock? How is it recorded?
Ownership 21% to 50%
Gives significant influence
Purchase Price - Par Value : Goodwill
Dividends received from the investee reduce the investment account and are not income
36
When are companies required to file consolidated financials? How is it recorded?
Ownership of other company is greater than 50%
Investment account is eliminated
Only parent company prepares consolidated statements; not subsidiary.
Acquired assets/liabilities are recorded at Fair Value on acquisition date.
Eliminating entries for inter-company sales of inventory & PPE; also inter-company investments
37
When is consolidation not required?
Ownership less than 50%
OR
Majority owner does not control - i.e. bankruptcy or foreign bureaucracy
38
What occurs under a step acquisition?
Acquirer held previous shares accounted for under Fair Value Method or Equity Method; and are now re-valued to Fair Value
Results in a Gain or Loss in current period
39
What is the difference between an acquisition and a merger?
Acquired companies continue to exist as a legal entity - their books are just consolidated with the parent company in the parent's financial statements
Merged companies cease to exist and only the parent remains
40
How are acquisition costs recorded in a merger?
Expensed in period incurred - i.e. NOT capitalized:
Accounting; Legal; Valuation; Consulting; Professional
Netted against stock proceeds:
Stock registration and issuance costs
41
What is a current asset?
Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle
Includes: Demand deposits, cash equivalents, accounts receivable, inventory, pre-paids, and short-term investments
42
What is a current liability?
A liability expected to be paid within 12 months or less
43
How is the Quick Ratio calculated?
(Cash + A/R + Trading Securities) / Current Liabilities
44
How is the Current Ratio calculated?
Currents Assets / Current Liabilities
45
How is Working Capital calculated?
Currents Assets - Current Liabilities
46
How is A/R Turnover calculated?
Credit Sales / Average A/R
47
How is Inventory Turnover calculated?
COGS / Average Inventory
48
How is Day Sales in Inventory calculated?
365 / Inventory Turnover
49
How is Days to Collect A/R calculated?
Average A/R / Average Sales per Day
50
How are gain contingencies recorded?
They are NOT accrued due to Conservatism
51
When are loss contingencies recorded?
If Probable - they are accrued (if estimable) and disclosed
If Reasonably Possible - they are disclosed
If Remote - don't accrue or disclose
52
What is a temporary difference related to deferred taxes?
GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another
Example: Dividends from a subsidiary accounted for using the Equity Method - tax income but not book income
53
What is a deferred tax asset?
Deduction will reduce future income taxes expense.
54
What is a deferred tax liability?
Income will be taxable in a future period and will increase future tax expense
55
Which period's tax rate is used to calculate a deferred tax asset or liability?
The FUTURE enacted tax rate not the current one.
It is never discounted to present value.
56
What valuation allowance is used with respect to a deferred tax asset?
If it isprobable that not all of a Deferred Tax Asset (debit) will be realized then the Deferred Tax Asset account must be written down (credit) to reflect this
57
What effect do permanent differences have on deferred income taxes?
They have no tax impact.
When calculating the total differences between book and tax income subtract the permanent differences from the total before applying a future enacted tax rate
58
What is deferred income tax expense?
The sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities
GAAP Method for calculating is theAsset and Liability Approach
Note: IFRS uses the Liability approach only
59
How are deferred tax assets classified as current or non-current on the balance sheet?
Current Deferred Tax Assets and Liabilities will impact income tax expense within 12 months. All current amounts are netted and reported as a single amount on the Balance Sheet
Non-Current Deferred Tax Assets and Liabilities will impact income tax expense 12 months or more fromt he Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet
60
How are derivatives recorded?
At cost when acquired re-valued to fair value each period on Balance Sheet.
61
How are unrealized gains/losses on trading securities recorded?
Recorded on income statement
62
How are gains and losses on Available for Sale (AFS) securities recorded?
They are included in Other Comprehensive Income.
63
What is a Fair Value Hedge? How is it recorded?
Fair Value Hedge offsets exposure to changes in the value of a recognized asset/liability or of an unrecognized commitment
Initially recorded on Balance Sheet at Fair Value
Gains/Losses recorded on Income Statement
64
What is a Cash Flow Hedge? How is it recorded?
Cash flow hedges protect from exposure to fluctuations in cash flows.
Initially recorded on Balance Sheet at Fair Value
Gains/Losses going to OCI
Example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price.
65
Where are gains and losses on foreign currency hedges recorded?
In Other Comprehensive Income (OCI)
66
What disclosures are required for derivative transactions?
Objectives and Strategies
Context to help investor understand the instrument
Risk Management Policies
Complete List of Hedged Instruments
67
How do transactions denominated in in a currency other than a company's functional currency affect the income statement?
Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations
68
For the balance sheet which date's translation rate is used to report assets and liabilities?
The current translation rate as of the balance sheet date is used to report assets and liabilities.
69
Which date's currency translation rate is used for the reporting of revenue and expense transactions in a foreign currency?
Use the weighted average exchange rate for the current year.
70
If the functional currency is the reporting currency which exchange rate is used on the foreign currency financial statements?
Foreign Currency Financial Statements are remeasured into the Reporting Currency (Dollar) using the weighted-average exchange rate
71
Where are re-measurement gains and losses due to foreign currency translation reported?
On the income statement as Other Income.
72
What is the primary objective of accounting?
To measure income
73
What is the most authoritative set of accounting pronouncements?
The FASB Codification
All pronouncements fall under the Codification umbrella
74
What are the 2 Levels of Authority within the FASB codification?
Authoritative and Non-Authoritative
75
How does managerial accounting differ from financial accounting?
Managerial Accounting has a timeliness focus
Managerial Accounting is not required to follow GAAP
76
Which financial reports are required to be filed with the SEC?
Form 10K - Annual and Audited
| Form 10Q - Quarterly and Reviewed
77
What is the focus of financial reports for individual companies?
Focus is on the needs of users to help them make decisions and assessments about the company
Does not make assessments of the economy
78
What are the Primary Constraints of Financial Reporting?
Cost vs. Benefit
Materiality
79
What are the Secondary Constraints of Financial Reporting?
Consistency - Year vs. Year
Comparability - Company vs. Company
80
What are the Qualitative Characteristics of Financial Reporting?
Relevance & Faithful Representation
Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions
Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions
81
What are the Enhancing Qualitative Characteristics of Financial Reporting?
Comparability Verifiability Timeliness and Understandability
Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand
82
How does Conservatism affect the recording of accounting transactions?
When an estimate is necessary due to uncertainty conservatism chooses the best option that won't overstate the financial position of the company
83
What is an accrual?
Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet
84
What is a deferral?
Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)
85
What is recognition in accounting?
When an item is recorded and included in the financial statements
86
Describe fair value with respect to an asset
The price you would receive if you sold the asset
Assumes asset is at its highest and best value
Assumes asset is sold at its most advantageous market to get the best price possible
87
What market assumptions are made in a fair value assessment?
Buyer and Seller are not Related
Buyer and Seller are Knowledgeable
Buyer and Seller are able to transact - i.e. This isn't a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you're trying to value at $10M
Buyer and Seller are both motivated to buy/sell
88
What items are included in a Level 1 input in the fair value hierarchy?
Price quotes or market prices
For example NYSE or NASDAQ
89
What items are included in a Level 2 valuation input?
Interest rates
Prime rate
90
What items are included in Level 3 inputs of the fair value hierarchy?
Unobservable inputs such as assumptions or forecasts
Lowest priority for valuation
91
What are acceptable valuation techniques for fair value?
Market approach - uses market transactions and prices to value the asset
Income approach - uses present value discounts earnings
Cost approach - uses replacement cost to value the asset
92
What are current assets?
Cash
Inventory or Assets expected to be converted or consumed during a business' operating cycle
Deferred Gross Profit on Installment Sales (Contra Asset)
Receivables expected to be collected in 12 months or less
93
What are current liabilities?
Liabilities that will use current assets during the present operating cycle
94
What is an accrued liability?
Expense that has been incurred but not paid
Example: rents payable
95
What is a deferred revenue?
A type of current liability
Payments that have been received but cannot be recorded as revenue yet
Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens
96
When are revenues recognized?
When they have been earned; i.e. company has performed
97
What is a gain?
Increase in equity from an activity or event that is not central to the main activities of the business
Can be operating or non-operating
98
What is a loss?
Decrease in equity from an activity or event that is not central to the main activities of the business
Can be operating or non-operating
99
What is an operating cycle?
Average time it takes to turn materials or services into Cash
100
What is the present value of future cash flows?
Valuation method - the current value of a future amount of money using a specific interest rate
101
What is historical cost?
How much an asset cost - (net of depreciation and amortization)
102
What is replacement cost?
How much it would cost to reacquire an asset today (Entrance Cost)
103
What is a market cost?
The sale price of an asset (Exit Cost)
104
What is Net Realizable Value?
Sale Price of an Asset - Selling/Disposal Fee
105
When is royalty income recognized? How is it recognized?
Recognized when earned
If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate
106
When is revenue recognized in an installment sale?
Revenue recognized upon receipt of cash
Only used when cash collection is uncertain
107
What is deferred gross profit?
Gross Profit that can't be recognized until cash is received
D.GP : Gross Profit % x Accounts Receivable
Pay attention to the year if GP% varies
108
What is the cost recovery method?
No revenue recognized until all costs are recovered from purchase of the asset
Most conservative method of revenue recognition when collection of sale price is uncertain
109
What is subscription revenue? How is it recorded?
Payment has been received but performance is not complete.
As company performs revenue is recognized.
Recorded as a Deferred Revenue (Liability) on Balance Sheet
110
How are franchise revenues recorded?
Franchisor - Startup franchise fee revenue deferred until substantial performance
Franchisee - Costs are deferred until corresponding revenue is recognized
111
How do you calculate sales revenue starting from cash basis income?
Mnemonic: SPEAR-BAR
Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis
112
How do you calculate COGS starting from Cash Basis?
Mnemonic: CRAP-I
Cash Remitted (i.e. paid)
+Increase in Accounts Payable
-Increase in Inventory
:COGS on an Accrual Basis
113
How are discontinued operations reported? When are they used?
Reported Net of Tax after Continuing Operations but before Extraordinary Items
Company decides to cease operating a segment of its business
Includes Income (or loss) from the period plus the gain (or loss) from disposal
114
What qualifies as an extraordinary item? How is it recorded?
Both unusual AND infrequent
Reported Net of Tax after Discontinued Operations
Note: Usual *or* Infrequent Items are reported as part of Continuing Operations
115
What is constant dollar accounting?
Adjusts assets to reflect a consistent level of purchasing power due to inflation
Uses the Consumer Price Index (CPI)
116
When are expenses recognized?
When they are incurred. Accrue if not yet paid.
117
What are accrued expenses?
Those incurred but not paid.
Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)
Period costs - Expenses amortized and recognized with the passage of time
118
When should impaired assets be written down to fair value and expensed?
Immediately.
119
What major items should be classified under General & Administrative (G&A) expenses?
Office staff salaries
Office/building rent
Office supplies
Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A
120
What are business start-up costs?
One-time costs for opening a new business
Expensed as they are incurred
121
When is interest *not* expensed?
Interest on projects (software) for internal use is not expensed but is instead capitalized
122
What are the major components of Comprehensive Income?
Net Income + Other Comprehensive Income (OCI):
Revenues/Expenses
Gains/Losses
Cumulative accounting adjustments
Reclassifications adjustments
Non-owner changes in equity
123
What items are considered cumulative accounting adjustments?
Foreign Currency Translation Adjustments
Unrealized gains on AFS Securities
Minimum Pension Liability adjustment for defined benefit plans
124
What is the purpose of a reclassification adjustment?
Avoids double counting items that were included in both Net Income and OCI
Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement
125
Where is Comprehensive Income reported?
Reported in a Single or Combined Income Statement
126
What disclosures on accounting policies are required in financial statements?
Accounting Principles used
Basis of Consolidation
Inventory Pricing Methods
Depreciation Method
Amortization of Intangibles
127
What are some major risks and uncertainties that must be disclosed?
Nature of Operations
Use of Estimates and listing of Significant Estimates
Concentration vulnerability
128
Which Personal Financial Statements are required?
Statement of Financial Condition & Statement of Changes in Net Worth
129
How are assets and liabilities valued in a Personal Financial Statement?
Estimated current value
130
How are estimated taxes that would be paid if all assets were converted into cash and all liabilities paid presented on a Personal Financial Statement?
Presented on Statement of Financial Condition between Liabilities and Net Worth
131
What is the general presentation on a statement of financial condition?
Assets
- Liabilities
- Estimated taxes on assets sold
: Net Worth
132
How is life insurance presented on a Personal Financial Statement?
Only shown if there is cash surrender value
It is shown net of loans against the policy
133
How are business interests shown on a Personal Financial Statement?
Business Interests that constitute a large percentage of total assets should be separated from other investments
134
What is the discreet view in an Interim Financial Statement?
Interim period is a separate accounting period - not GAAP
Same accounting principles used for annual reporting should be used.
135
What is the integral view in an Interim Financial Statement?
Interim period is a part of the annual period - GAAP
Gross profit method may be used to estimate COGS and inventory
Temporary declines in inventory aren't recognized
136
How are discontinued operations & extraordinary items reported in Interim Financial Statements?
Aren't prorated
Fully recognized in Interim Period as incurred
If it occurs in Q3 - it's recognized in Q3
137
How are cumulative gains and losses reported in Interim Financials?
Reported as if they occurred in the first quarter
138
How is inventory valuation handled in Interim Financials?
If inventory experiences a decline in value during an interim period - the loss is recognized in the interim period
If the loss is expected to be only temporary - no loss is recognized
139
What is one of the primary problems with interim reporting?
The matching principle gets messed up - Expenses incurred in one period may benefit future periods
140
For whom is Segment Reporting required?
Publicly traded companies
141
What factors cause a segment to be significant and therefore to be reported separately?
Revenue of segment is 10% or more of total
Profit is 10% or more of total
Segment assets are 10% or more of total
75% Test - All segment revenues must equal 75% of total external revenues
142
What is the disclosure requirement regarding sales of 10% or more for one customer?
If 10% or more of enterprise revenue comes from one customer - the segment making the sales must be disclosed
143
How are Research and Development costs recorded?
They are expensed in the period incurred and are not capitalized.
144
Which expenditures are included in the cost of a building?
All expenditures to get the building into working condition are ready for use
145
Which expenditures are included in the cost of land?
All expenditures to get the land ready for its intended use:
Title & County Fees
Clearing of Land - Dirt work etc.
Demolition and removal of old buildings (minus any scrap or salvage)
Note: capitalized land costs are not depreciated
146
In an exchange of non-monetary assets how much gain is recognized if no additional cash is exchanged when there is no significant difference in resulting cash flows?
If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.
The new asset is recorded at the book value of the asset given up.
The only gain that can be recognized is any boot (cash) received.
147
In an exchange of non-monetary assets what gain is recognized if resulting cash flows are significantly different?
If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.
The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.
148
How is donated property recorded by the donee?
Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose
Exam Tip - Think of a charity holding afair and then donating the property which is then recorded atfair value
149
How is donation of property recorded by the donor?
Recorded at Fair Value of asset given up.
Gain or Loss is recorded.
150
How is double-declining balance (DDB) depreciation calculated?
1 / (Useful Life x 2 x Book Value)
Ignore salvage value.
151
How is Sum of Year's Digits (SYD) depreciation calculated?
(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense
For example the depreciation factor for the third year of a 10-year asset would be:
: 8 / (10+9+8+7+6+5+4+3+2+1) : 8/55 : 14.5%
Remaining useful life : 8 SYD : 55
152
How is straight line depreciation calculated?
(Cost - Salvage Value) / Useful life : depreciation expense
153
When is an asset considered to be impaired? How is impairment loss calculated?
When the un-discounted future cash flows are less than the carrying value of the asset.
Carrying Value - Fair Value : Impairment Loss
Note: impaired assets that recover their value can't be written back up once written down
154
How are legal fees to defend a patent amortized?
If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent's economic life.
If unsuccessful they are expensed immediately.
155
What are the two steps for testing goodwill impairment?
Compare the CV to the FV. If FV is greater than CV no impairment exists you're done.
If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly.
156
How are costs for developing software recorded?
Expenses prior to technological feasibility are expensed as R&D.
After technological feasibility but prior to production costs are capitalized.
Expenses incurred during production are charged to inventory.
Expenses incurred training on internal use software are expensed.
157
What expenditures are included in the cost of equipment?
All expenditures to get the asset into working condition and ready for use:
```
Purchase price + liabilities assumed
Shipping
Taxes
Insurance
Installation
Testing
Legal fees
Construction loan interest
```
Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.
158
What are the three major types of funds in governmental accounting?
Governmental, Proprietary, Fiduciary
159
Which two accounting bases are used in governmental accounting?
Accrual basis - current economic resources focus (revenues recognized when earned)
Modified accrual basis - current financial resources focus (revenues recognized when available and measurable)
160
What is a budget appropriation?
The highest amount allowed for a particular expenditure under a budget.
161
What is an encumbrance?
Records purchase and reserves it for the encumbrance.
162
What is the opening budgetary entry?
Dr Estimated Revenues Control
Cr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)
163
What is the closing budgetary entry?
Dr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)
Cr Estimated Revenues Control
164
What are the types of governmental funds?
General Fund
Special Revenue Fund
Permanent Fund
Capital Projects Fund
Debt Service Fund
165
What is a General Fund?
The operating fund of the governmental unit
Records Significant Revenues: Taxes; Tickets; Fines; Licenses
Records Significant Expenditures: Police; Education; Fire Dept
166
What is a Special Revenue Fund?
Restricted for a specific purpose such as street repair.
167
What is a Permanent Fund?
Legally restricted fund; where only earnings can be used to fund programs.
Principal remains intact.
168
What is a Capital Projects Fund?
Used to acquire and build facilities.
169
What is a Debt Service Fund?
Handles repayment of long-term debt and related interest.
170
Which fund statements are issued in Governmental Accounting?
Balance Sheet
Statement of Revenues; Expenditures; and Changes in Fund Balance
171
When is Revenue recorded in Governmental Accounting?
When it is BOTH available and measurable; regardless of when it is spent.
172
What is Derived Tax Revenue?
Money collected from people doing things:
Sales tax (buying cars) or income tax (people working)
173
What is Imposed Tax Revenue?
Tax assessed just because things exist
Example: property tax on a car (even if it's never driven); real estate tax
Recorded as a revenue when BUDGETED.
Estimated uncollectible property tax revenues don't offset revenues; so don't net them.
174
What are the types of Proprietary Funds?
Internal Service Funds - to serve the needs of other governmental units (i.e. motor pool)
Enterprise Funds - provide goods or services to external users (i.e. post office)
175
What are the Fund Balance Types?
Restricted - Restricted by Contributor
Committed - Restricted by Government
Assigned - Intended for a purpose
Unassigned - Available to be spent
Non-spendable - Not in a spendable state
176
What are the types of Fiduciary Funds?
Agency Fund - government acts as an agent or custodian
Pension Trust Fund - Government is a trustee for a pension plan
Investment Trust Fund - Government is a trustee over a series of investments
Private Purpose Trust - Trust that benefits various individuals and entities
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How are Assets & Liabilities presented on the Statement of Net Position?
Assets (Current & Non-Current)
Deferred Outflows of Resources
Liabilities (Current & Non-Current)
Deferred Inflows of Resources
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How are Capital Assets shown on a governmental Statement of Net Assets?
They are shown net of debt
Asset Cost - Accumulated Depreciation - Asset Liabilities : Net Assets
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How is infrastructure reported on a governmental Statement of Net Assets?
Modified approach:
Reported at cost; no accumulated depreciation
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How is a Statement of Net Assets divided?
Into Governmental Activities and Business Activities
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How are activities presented in a Statement of Activities?
They are divided by function
If the activities of a component are distinguishable from the rest of the governmental entity; then discreet presentation is required
If the activities of the component cannot be identified and separated from the rest of the governmental activities; then blended presentation is warranted.
Component units are reported in the Entity-Wide Financial Statements and not the Fund Financial Statements.
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What is the primary objective of governmental accounting?
To provide information that is useful and benefits a wide range of users including:
Costs of services provided
Sufficiency of revenues to cover costs
Financial position of entity
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What Financial Statements are required for Defined Benefit Pension plans?
Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position
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What are the components of the Statement of Fiduciary Net Position for Defined Benefit Pension Plans?
Assets; Deferred Outfows; Liabilities; Deferred Outflows; Fiduciary Net Position
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What are the components of the Statement of Changes in Fiduciary Net Position for Defined Benefit Pension plans?
Additions (Contributions and Net Investment Income) - Deductions (Benefits Payments and Admin Expense) : Net Change in Fiduciary Net Position
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What should be included in the Financial Statement notes for Defined Benefit Pension Plans?
Types of Benefits; Plan Member Classes; Board Information; Investment Policies and FV Determination
