F8

Question 1

Name the primary authoritative body for GAAP for governmental entities.

Answer 1

Governmental Accounting Standards Board (GASB)

Question 2

What are the three accounting themes addressed by governmental accounting?

Answer 2

• Fund structure
• Fund accounting
• External reporting

Question 3

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

Answer 3

• Governmental
• Proprietary
• Fiduciary

Question 4

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

Answer 4

Fund accounting principles are defined by:

• Measurement Focus (how transactions are recognized)
• Basis of Accounting ( when transactions are recognized)

Question 5

What are the objectives of external reporting?

Answer 5

• Operational accountability

* Fiscal accountability

Question 6

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

Answer 6

• Operational accountability: Government wide financial statements
• Fiscal accountability: Fund financial statements

Question 7

Name each governmental fund type

Answer 7

G  General Fund
R  Special Revenue Funds
S  Debt Service Funds
P  Capital Projects Funds
P  Permanent Funds

Question 8

What are the fund accounting principles applicable to governmental funds?

Answer 8

Measurement focus: current financial resources

Basis of Accounting: modified accrual

Question 9

What specialized accounting practices are followed by the governmental funds?

Answer 9

B Budgetary Accounting
A Activity (actual) Accounting
E Encumbrance Accounting

Question 10

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

Answer 10

1. Nonspendable - resources that are not available to be spent. (eg. inventories)
2. Restricted - resources that are constitutionally, legislatively, or otherwise externally limited as to use.
3. Committed - resources that are internally limited as to use by the government’s highest level of decision making authority.
4. Assigned - resources intended to be used by the government for specific purposes whose constraints do not rise to the level of restricted or committed
5. Unassigned - Residual classification of equity that represents resources that are the least limited as to use.

Question 11

Name each proprietary fund type

Answer 11

S Internal Service Funds

E Enterprise Funds

Question 12

What are the fund accounting principles applicable to proprietary funds?

Answer 12

Measurement Focus: Economic resources

Basis of Accounting: Full accrual

Question 13

Name each fiduciary fund type

Answer 13

P Pension (and other employee benefit) trust funds
A Agency Funds
P Private purpose trust funds
I Investment trust funds

Question 14

What are the fund accounting principles applicable to fiduciary funds?

Answer 14

Measurement Focus: Economic resources

Basis of accounting: Full Accrual

Question 15

Distinguish between alternative measurement focuses

Answer 15

Current Financial Reseources (GRSPP):

• No fixed assets are recorded; capital outlays displayed as expenditures
• No depreciation
• No non-current liabilities are recorded; debt proceeds displayed as resource inflows
• Principal 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
• Non-current liabilities are recorded

Question 16

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

Answer 16

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

Question 17

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

Answer 17

• Measurable means reasonably estimable or of a known determined amount
• available means collectible within (generally) 60 days of year-end

Question 18

When are revenues recorded in governmental funds?

Answer 18

Governmental funds record revenues when measurable and available. This concept applies to accrual of different types of revenue depending on their character.

Accrue when:
Billed/ Recorded ( imposed non-exchange transactions)
Real estate taxes (due)
Received (derived non-exchange transactions)
Income taxes
Sales taces
Earned (Government mandated and voluntary non-exchange transactions)
Real estate taxes paid in advance
Restricted grants

Question 19

Define the different classifications of expenditures

Answer 19

Expenditure classifications include:

• Function (eg, public safety)
• Organizational unit (eg, police department, fire department)
• Activity (eg, drug enforcement, highway safety patrol)
• Character (eg, current, capital outlay, debt service, intergovernmental)
• Object (eg, personal services, building occupancy, insurance)

Question 20

What is the journal entry to record the annual budget?

Answer 20

DR. Estimated revenues
CR. Appropriation
CR. Budgetary control

Actual expenditures have a natural debit balance. Appropriations to which those expenditures are compared have a natural credit balance. Computation of unexpected appropriations is a pure arithmetic sum of these two accounts.

Question 21

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

Answer 21

Encumbrance: A commitment related to an unperformed contract for goods or services

DR. Encumbrance
CR. Budgetary control

Encumbrances have a natural debit balance, to which those encumbrances are compared, have a natural credit balance. computation of unencumbered appropriations is a pure arithmetic sum of these two accounts. Computation of unexpected and unencumbered appropriations is the sum of the three accounts; Appropriations (credit), Expenditures (debit), and Encumbrances (debit).

Question 22

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

Answer 22

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)

Question 23

When are budgetary, actual , or encumbrance entries combined?

Answer 23

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 - Encumbrances

Question 24

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

Answer 24

Activity:
DR. Revenues
DR. Unassigned fund balance
CR. Expenditures

Budget (Deficit):
DR. Appropriations
CR. Estimated revenues
CR. Budgetary control

Encumbrance:
DR. Budgetary control
CR. Encumbrances

At the beginning of the next year, the above encumbrance entry is reversed. The entry will keep the budgetary control intact in order to account for resources spent in the next year that would have been budgeted in the current year.

Question 25

Journal entry to recognize suppried remaining at year- end.

Answer 25

Purchase method: DR. Supplies on hand inventory CR. Fund balance, nonspendable This journal entry indicated 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 nonspendable classification of fund balance should have been done as each of inventory was recorded.

Question 26

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

Answer 26

1. Changes in fair value of hedging derivative instruments. 2. Resources to be reported by a transferor government in a qualifying service concession agreement. 3. Revenues that are measurable but not available (collected more than 60 days after year-end) 4. Non-exchange revenues (eg. property taxes) reported as receivable prior to their formal levy. 5. Changes in pension liabilities that result from changes in actuarial assumptions. 6. Other deferred outflows/inflows of resources.

Question 27

What is the purpose of the general fund?

Answer 27

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

Question 28

What are the typical revenue sources of the general fund?

Answer 28

* Taxes (property taxes) * Public safety and regulations (fines, inspection fees, etc.) * Intergovernmental (shared revenues) * Charges for services * Other revenues (interest income)

Question 29

What is the purpose of the special revenue fund?

Answer 29

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

Question 30

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

Answer 30

* Intergovernmental revenues (eg sales taxes or gasoline taxes restricted for use) * Intergovernemental revenues (eg, grants and other financial assistance provided for a specific purpose) * Specific fees (eg, parking fees, museum admission fees, etc) * Seizure of assets surrendered as a result of illegal acts ( eg. Forfeiture Act)

Question 31

What is the purpose of the debt service fund?

Answer 31

* The debt service fund is created to account for the accumulation of restricted, committed, or assigned resources (cash and investments) for the payment of current due interest and principal on long term general obligation debt. * Debt service funds pay GRSPP debt. * Debt service funds do not pay SE PAPI debt

Question 32

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

Answer 32

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

Question 33

What is the purpose of the capital project fund?

Answer 33

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.

Question 34

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

Answer 34

Revenues * Investment earnings * Tax revenues specifically levied to fund capital improvement Other financing sources * Debt proceeds used to fund construction * Transfers from other funds

Question 35

What is the purpose of the permanent fund?

Answer 35

Permanent funds are used to report resources that are legally restricted to the extent that only earnings and not principal may be used for the purposes that support the reporting government's programs.

Question 36

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

Answer 36

GRSPP Funds require: * Balance Sheet * Statement of Revenues, Expenditures, and Changes in Fund Balance

Question 37

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

Answer 37

Assets + Deferred outflows of resources = Liabilities + Deferred inflows of resources + Fund balance

Question 38

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

Answer 38

``` Revenues (Expenditures) Ecxess (deficiency) of Revenues Over (under) expenditures Other Financing Sources and Uses Special and extraordinary Items Net change is Fund Balance Fund Balance - Beginning of year Fund Balance - End of Year ```

Question 39

What is the purpose of the internal service fund?

Answer 39

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 requirements do not apply to internal service funds.

Question 40

What are typical revenue sources for internal service funds?

Answer 40

Operating Revenues Charges for services provided to other funds ( These charged are not transfers or other financing sources) Non Operating Revenues * Investment income * Grant revenues

Question 41

What is the purpose of the enterprise fund?

Answer 41

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

Question 42

What are typical revenue sources for enterprise funds?

Answer 42

Operating Revenues - Charges for services (utility fees, patient fees, tuition, other exchange type fees) Non Operating Revenues * Shared/ grant revenues * Investment income

Question 43

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

Answer 43

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

Question 44

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

Answer 44

Alternative Structures Balance Sheet - (Assets + Deferred outflows of resources) = (Liabilities + Deferred inflows of resources) + Net position OR Net Position - (Assets + Deferred outflows of resources) - (Liabilities + Deferred inflows of resources) = Net position

Question 45

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

Answer 45

``` Operating Revenues (Revenues by Major Source) Operating Expenses Operating Income (Loss) Non Operating Revenues ( Expenses) Income or Loss Before Contributions and Transfers Capital Contributions Transfers Out Change in Net Position ```

Question 46

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

Answer 46

* Cash flows from operating activities * Cash flows from non capital financing activities * Cash flows from capital financing activities * Cash flows from investing activities

Question 47

What is the purpose of the pension trust fund?

Answer 47

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

Question 48

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

Answer 48

Note Disclosures - * Plan description * Contributions and reserves Required Supplementary Information ( Presented for each of the most recent 10 year) - * Sources of changes in net pension liability (NPL), total pension liability (TPL), and plan fiduciary net position (FNP). {TPL - FNP = NPL} * Information about components of the net pension liability, the actuarially determined contributions (ADC), and various ratios. * The annual money weighted rate of return on pension plan investments for each year presented.

Question 49

What is the purpose of the agency trust fund?

Answer 49

An agnecy fun 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.

Question 50

What is unique about agency fund revenues and expenses?

Answer 50

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

Question 51

What is the purpose of the private purpose trust fund?

Answer 51

The private purpose trust fund is the designed 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.

Question 52

What is the purpose of the investment trust fund?

Answer 52

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.

Question 53

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

Answer 53

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.

Question 54

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

Answer 54

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 assets accounts are displayed as equal to the sum of liability and equity accounts.

Question 55

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

Answer 55

Additions (Deductions) Changes in net position