Governmental Reporting - Fund Accounting

Question 1

What are the types of accounting in fund accounting?

Answer 1

Budgetary: ensure budget compliance
Activity: account for transactions
Encumbrance: account for purchase orders

Question 2

What are the types fund balances?

Answer 2

Reserved or Unreserved

Question 3

What are the types of reserved fund balances?

Answer 3

1) non-spendable: cannot be spent b/c not in spendable form (inventory, prepaids)
2) restricted: externally restricted for specific use
3) committed: reserved for specific purpose by formal action of the govt
4) assigned: intended for specific purpose

Question 4

When are entries are made in budgetary accounting?

budgetary accting

Answer 4

Twice a year; beginning (to open) and ending (to close)
- only exception is if there is an amendment for add’l rev/exp

These are estimated accounts which serve as control accounts.

Question 5

What are budget revenue sources?

budgetary accting

Answer 5

Estimated revenues: revenues expected to be available for spending in the period

Estimated other financing sources: proceeds from issuance of long-term debt & transfers from other govt funds

Question 6

What are budget revenue uses?

budgetary accting

Answer 6

Appropriations: expenditures expected to occur in the period

Estimated other financing uses: transfers to other govt funds

Question 7

What is a balanced budget?

budgetary accting

Answer 7

estimated revenues + estimated other financing sources

appropriations + estimated other financing uses

Question 8

What is a budget surplus?

budgetary accting

Answer 8

reported as “Increase in Fund Balance - Unreserved”

estimated revenues + estimated other financing sources > appropriations + estimated other financing uses

Question 9

What is a budget deficit?

budgetary accting

Answer 9

reported as “Dencrease in Fund Balance - Unreserved”

estimated revenues + estimated other financing sources < appropriations + estimated other financing uses

Question 10

Budgetary accounting - example opening journal entries

Answer 10

Budgeted revenues DR 1600
Estimated other financing sources DR 600
Budgetary fund balance DR -0-
Appropriations CR 1400
Estimated other financing uses CR 500
Budgetary fund balance - unreserved CR 300

Question 11

Budgetary accounting - example closing journal entries

Answer 11

Appropriations DR 1400
Estimated other fin uses DR 500
Budgetary fund bal - unreserved DR 300
Budgetary fund bal - unreserved CR -0-
Budget revenues CR 1600
Estimated other fin sources CR 600

Question 12

What are items are accounted for in activity accounting?

activity accting

Answer 12

Revenue, expenses, assets, debts

Question 13

What are the revenue types in activity accounting?

activity accting

Answer 13

Exchange revenue and non-exchange revenue

Question 14

What is exchange revenue?

activity accting

Answer 14

Revenue from provision of goods & services; recognized when earned.

Question 15

What is non-exchange revenue?

activity accting

Answer 15

Derived revenue
Imposed revenue
Grants

Question 16

What are types of derived revenue?

activity accting

Answer 16

income taxes & sales taxes (the tax income is derived from the taxpayers income and the sales made)

revenue is recognized when received (b/c the govt doesn’t know in advance how much it will be)

Question 17

What are the types of imposed revenue?

activity accting

Answer 17

property tax; recog when billed (govt knows how much it will be before rec’d)
fines/penalties; recog when billed
license fees; recog when received (govt doesn’t know how much in advance)

the revenue is imposed on the payer

Question 18

What are the types of grant revenue?

activity accting

Answer 18

government mandated; recog when eligible

voluntary; recog when eligible

Question 19

When are non-measurable revenues recognized?

activity accting

Answer 19

Treated as available to spend once collected

Question 20

What is deferred revenue in activity accounting?

activity accting

Answer 20

Revenue billed or collected in advance is treated as deferred revenue (liability) until the future period to which it applies.

Gov’t can’t spend this revenue because it does not relate to this period.

Question 21

Deferred revenue journal entries

activity accting

Answer 21

In the year received:
receivable DR
deferred rev CR

In the year earned:
deferred rev DR
revenue CR

Question 22

Allowance for doubtful revenue - sample journal entries

activity accting

Answer 22

Create an allowance for the revenue not expected to be collected

In year billed/earned/eligible:
receivable DR 1000
allowance for uncollectible CR 100
revenue CR 900

Write off receivable:
allowance DR 100
receivable CR 100

Allowance is received:
allowance DR 100
revenue CR 100

Receivable delinquent & allowance increased:
revenue DR 150
allowance CR 150

Question 23

Delinquent receivable - sample journal entries

activity accting

Answer 23

Receivable is classified as delinquent if it is overdue and not received

In year billed/earned/eligible:
receivable - current DR 1000
allowance for uncoll - current CR 100
revenue CR 900

In year delinquent: (900 cash rec’d)
receivable - delinquent DR 100
receivable - current CR 100

allowance - current DR 100
allowance - delinquent CR 100

If delinquent is less than allowance: (925 cash recd)
allowance - current DR 100
revenue CR 25
allowance - delinquent CR 75

If delinquent more than allowance: (800 cash recd)
allowance - current DR 100
revenue DR 100
allowance - delinquent CR 200

Question 24

How are expenditures treated?

activity accting

Answer 24

All expenditures are current period expenses. No capitalization.

Question 25

Inventory expenditures, purchase method - sample journal entries activity accting

Answer 25

Purchase: expenditure DR vouchers payable CR Use of inventory: no entry Year-end: inventory DR non-spendable fund balance CR

Question 26

Inventory expenditures, consumption method - sample journal entries activity accting

Answer 26

Purchase: expenditure DR vouchers payable CR Use of inventory: expenditure DR inventory CR Year-end: no entry

Question 27

How are expenditures classified/organized under activity accounting? activity accting

Answer 27

While budgetary accounting reports expenditures by object class, activity accounting reports expenditures by their function within different classifications.

Question 28

What are the expenditure character classifications in activity accounting? activity accting

Answer 28

Function/program - classification based on the overall purpose/objective of the expenditure. E.g., public safety, health & welfare, education Organizational unit - classification based on the govt's organizational structure. E.g., police dept, fire dept Activity - classification based on the activity it is used for within the org unit. E.g., administration in the police dept, crime control & investigation in the police dept Object - classification of the expenditure based on nature. E.g., salaries, rent, utilities Character - classification based on the fiscal period of expected benefits. E.g., expenditure, capital outlay

Question 29

Fixed assets - journal entries activity accting

Answer 29

expenditure DR | vouchers payable CR

Question 30

Debt - journal entries activity accting

Answer 30

cash DR | other financing sources CR

Question 31

Closing entries (end of year) - journal entries activity accting

Answer 31

Revenues DR Other financing sources DR fund balance unreserved CR other financing use CR expenditures CR

Question 32

What is an encumbrance? encumbrance accting

Answer 32

When an open purchase order is placed with a vendor. This creates a legal commitment and requires that a portion of the fund balance be reserved.

Question 33

Purchase orders - sample journal entries encumbrance accting

Answer 33

When order is placed: encumbrances DR 5000 budgetary fd bal-reserved for encumbr CR 5000 When order is received: budgetary fd bal-reserved for encumbr DR 5000 encumbrances CR 5000 What you actually receive may be different amounts. But that does not impact the encumbrance accting. You are simply placing and removing holds on the funds.

Question 34

Year-end outstanding encumbrances encumbrance accting

Answer 34

Close out all oustanding encumbrances at the end of the year. They will be reopened with the next year. budgetary fd bal-reserved for encumbr DR encumbrances CR

Question 35

Funds available for use calculation

Answer 35

Appropriations (budget - target spending) less; encumbrances (encumbrance - $ planned spend) less: expenditures (activity - $ already spent) = funds available for use

Question 36

Which government funds use encumbrance accounting? encumbrance accting

Answer 36

Encumbrance accounting only applies to general fund, special revenue fund, and capital fund. It does not apply to debt service fund and permanent fund which do not issue purchase orders.