Government and Nonprofit accounting

Question 1

What are the three main types of funds?

Answer 1

Government, Proprietary, and fiduciary

Question 2

What funds exist within government funds?

Answer 2

General, Special revenue, capital projects, debt service and permanent.

Question 3

What funds exist within proprietary funds?

Answer 3

internal service, enterprise

Question 4

What funds exist within fiduciary funds?

Answer 4

agency, trust

Question 5

What type of fund? A city collects 3 million of taxes on behalf of the county in which it is located.

Answer 5

Agency. Because the city is acting as an agent for the county.

Question 6

What type of fund? City uses money collected through gasoline tax to repair road.

Answer 6

Special revenue fund

Question 7

What type of fund? A city receives a 5 million contribution in which it can only spend the interest earned on the investment.

Answer 7

Permanent (trust) fund

Question 8

What type of fund? City collects 1 million in landing fees at the city owned airport.

Answer 8

Enterprise Fund

Question 9

What type of fund? A city earns 2 million on investments set aside to make principle payments on the city’s outstanding bond.

Answer 9

debt service fund

Question 10

What type of fund? City pays 4 million to a contractor for work on one of the city’s bridges.

Answer 10

Capital projects fund

Question 11

What type of fund? City pays 1 million in wages and salaries to police officers.

Answer 11

General fund

Question 12

What type of fund? City purchases 2 million dollars stationary from outside supplier that it will sell to various operating departments.

Answer 12

internal service fund

Question 13

Prepare Journal entry. City receives 1 million cash contribution of which 400,000 is restricted to the acquisition of new building.

Answer 13

Debit Cash 600,000 (General Fund)
Credit contribution revenue 600,000 (General fund)

Debit Cash 400,000 (cap project fund)
Credit contribution revenue 400,000 (Cap project fund)

Question 14

What is a government appropriation?

Answer 14

A government appropriation is the legislative approval or authorization granted by a government for the expenditure of funds for specific purposes. It is a formal process through which government agencies receive permission to spend money from the public treasury for various programs, services, or projects. Appropriations are a crucial aspect of the budgeting process and are typically outlined in government budgets, which are approved by the legislative body.

Key points regarding government appropriations include:

Budget Approval:

The process begins with the formulation of a government budget, which outlines the planned revenues and expenditures for a specific period. The budget is presented to the legislative body for approval.
Allocation of Funds:

Within the budget, funds are allocated to different government departments, agencies, or programs based on the priorities and needs identified by the government. Each allocation specifies the amount of money approved for particular purposes.
Legislative Authorization:

The legislative body, such as a parliament or congress, reviews and approves the budget, including the specific appropriations. This legislative authorization is a formal approval granted through the passage of budget bills or appropriations acts.
Purpose Restrictions:

Appropriations often come with restrictions specifying the purposes for which the funds can be used. This ensures that government agencies spend money in accordance with legislative intent and policy goals.
Time Period:

Appropriations are typically valid for a specific fiscal year or budgetary period. Once the budget expires, new appropriations are required for continued spending.
Oversight and Accountability:

The approval of appropriations involves a level of oversight and accountability. Government agencies are accountable for how they use allocated funds, and regular reporting may be required to ensure transparency and proper use of public resources.
Supplementary Appropriations:

In certain situations, supplementary appropriations may be required during the fiscal year if unexpected needs arise or if there are changes in priorities that necessitate additional funding.
Government Functions:

Appropriations cover a wide range of government functions, including education, healthcare, defense, infrastructure development, social services, and more.
The appropriation process is a fundamental element of financial management in government, ensuring that public funds are allocated and spent in accordance with the priorities and policies established by the legislative body. It plays a crucial role in maintaining fiscal discipline, transparency, and accountability in government finances.

Question 15

what is an encumbrance?

Answer 15

Alright, let’s imagine you have some money, and you know you’ll need to spend it later for something important, like buying a new bike. Now, you don’t want to accidentally use that money for something else before you get your bike. So, what do you do?

You decide to set aside that specific amount of money just for the bike, kind of like putting it in a special piggy bank labeled “New Bike Fund.” This way, even if you have other money for everyday things, you know this particular amount is reserved for your bike.

In grown-up terms, we call this setting aside money for a specific purpose an “encumbrance.” It’s like making a promise to yourself that you won’t use that money for anything else until you’ve bought your bike. So, when the time comes to get your bike, you can open your “New Bike Fund” piggy bank and happily spend the money you’ve saved just for that!

In short, encumbrance is a way of making sure you keep money separate for something important and don’t accidentally spend it on other things.

Question 16

What is the difference between an encumbrance and an expenditure?

Answer 16

Expenditure and encumbrance are terms used in financial and accounting contexts, and they represent different stages in the process of spending money. Here’s the difference between the two:

Expenditure:

An expenditure occurs when actual funds are paid out or spent for goods, services, or other financial obligations. In simple terms, it’s the point at which money leaves the organization to settle a bill or make a purchase. Expenditures are reflected in the financial statements and impact the organization’s cash or financial resources immediately.
Encumbrance:

An encumbrance, on the other hand, is a commitment or reservation of funds for a specific future expense. It represents a set-aside amount of money to fulfill a contractual obligation or pay for goods or services that have been ordered but not yet received. An encumbrance is created before the actual expenditure occurs, indicating the intention to spend money in the future.
Key Differences:

Timing:

Expenditure happens when the money is actually spent, while an encumbrance is created before the actual spending takes place. Encumbrances serve as a way to plan and reserve funds for anticipated future expenses.
Financial Statements:

Expenditures are immediately reflected in financial statements, impacting measures like cash flow. Encumbrances, being commitments, are disclosed in financial reports but do not directly affect cash until the actual expenditure occurs.
Use of Funds:

Expenditures involve the use of funds for a specific purpose. Encumbrances, on the other hand, temporarily earmark funds for a future purpose without immediately impacting the available cash.
Accounting Treatment:

Expenditures are recorded when the money is paid, affecting both income statements and balance sheets. Encumbrances are typically recorded in separate accounts until they are either adjusted when the actual expenditure occurs or reversed if the plans change.
In summary, an expenditure represents the actual spending of money, while an encumbrance is a commitment or reservation of funds for a future expense. Encumbrances help organizations plan and track their financial commitments, providing a way to set aside funds for planned expenses before the actual payment is made.

Question 17

what are budgetary accounts in governmental accounting

Answer 17

In governmental accounting, budgetary accounts are specific accounts used to track and control the budgeting process. These accounts help governmental entities manage their finances in accordance with the approved budget. Budgetary accounts are temporary accounts that are closed at the end of the fiscal period, and they serve as a bridge between the planning (budgeting) and execution (actual financial transactions) stages.

Here are some common types of budgetary accounts in governmental accounting:

Appropriations:

Appropriations represent the legal authority granted by the legislative body to spend a specific amount of money for a particular purpose or program. The Appropriations account is debited when the budget is approved, indicating the planned expenditures.
Estimated Revenues:

This account represents the government’s estimate of the revenues it expects to receive during the budget period. It is a projection of income from various sources, such as taxes, grants, and fees. The Estimated Revenues account is credited when the budget is approved.
Encumbrances:

Encumbrances represent commitments to spend funds for goods or services that have been ordered but not yet received. The Encumbrances account is debited when a purchase order or contract is issued, indicating the reservation of funds for a future expense.
Budgetary Reserves:

Some governments may establish budgetary reserve accounts to set aside funds for unforeseen circumstances or emergencies. These reserves provide a buffer against unexpected expenses and are credited when the budget is approved.
Budgetary Control:

Budgetary Control accounts are used to monitor and control expenditures against the approved budget. These accounts track the cumulative budgeted amounts, actual expenditures, and available balances.
Expenditures:

The Expenditures account records the actual spending of funds for various purposes, such as salaries, supplies, and services. It is debited when expenditures occur.
Revenues:

The Revenues account records the actual revenue received by the government during the budget period. It is credited when revenues are collected.
Transfers:

Governments may have budgetary accounts related to transfers between funds. These accounts track the movement of funds between different accounts or funds within the government.
It’s important to note that budgetary accounts are temporary in nature and are closed at the end of the fiscal period. The balances in these accounts are transferred to corresponding revenue, expenditure, or fund balance accounts in the government’s financial statements. The use of budgetary accounts helps ensure that financial transactions align with the approved budget and allows for effective budgetary control and reporting.

Question 18

What are non exchange revenues?

Answer 18

In a nonexchange transaction, a government gives (or receives) value without directly receiving (or giving) equal value in return. This is different from an exchange transaction, in which each party receives and gives up essentially equal values.

Question 19

What are some examples of enterprise funds?

Answer 19

Examples of enterprise funds can include utilities (like water, sewer, or electricity services), transportation services, public hospitals, parking garages, and recreational facilities.