Deck 3: Modified Accrual Accounting: Including the Role of Fund Balances and Budgetary Authority

Question 1

The fund balance of a government fund is analogous to the capital of an investor-owned entity.

Answer 1

False

Question 2

Encumbrances are often deemed unnecessary for recurring expenditures such as payroll.

Answer 2

True

Question 3

Expenditure classification by character includes current, capital outlay and debt service.

Answer 3

True

Question 4

"Estimated Revenues Not Yet Realized" will commonly have a net debit balance during the year.

Question 5

"Unexpended Appropriations Balance" may be interpreted as how much a government may continue to spend and remain within its budget.

Question 6

Encumbrances are recorded when a purchase order is filled or a contract is executed.

Question 7

At the time of a purchase order being issued, it is necessary to debit the Encumbrances control account and credit the Reserve For Encumbrances account.

Question 8

GASB requires that the budgetary basis of accounting for the General Fund used in the Budget-Actual Comparison Schedule be on the same modified accrual basis as the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balance.

Question 9

The Budgetary Comparison Schedule requires a column for the original budget, a column for the final revised budget and a column for actual figures, computed on the accrual basis.

Question 10

Encumbrances Control is closed at year-end.

Question 11

When liabilities authorized by an appropriation have been incurred, the appropriation is said to be expended.

Question 12

Ad valorem property taxes depend on two factors: the assessed valuation of the property being taxed and the tax rate.

Question 13

The Budgetary Comparison Schedule is considered a part of Required Supplementary Information in the Comprehensive Annual Financial Report.

Question 14

The budgetary account used to control Revenues is called "Estimated Revenues Control."

Question 15

Under the modified accrual basis, ad valorem taxes are recognized in the period in which cash is received, regardless of when the taxes were levied.

Question 16

When a purchase order or contract is issued as authorized by an appropriation, it is known as an expenditure.

Question 17

Examples of budgetary accounts include Estimated Revenues, Appropriations and Estimated Other Financing Uses.

Question 18

The category "other financing uses" includes transfers from other funds and bond issue proceeds.

Question 19

Budgetary accounts begin each year with a zero balance and are closed at the end of each year.

Question 20

An appropriation is authorization for administrators to incur specified amounts of liabilities on behalf of the government for specified purposes.

Question 21

Encumbrance is the legal authorization for administrators of governmental unit to incur liabilities for purposes specified and to not exceed the amount specified.

Question 22

When purchase orders are filled and the invoice amount differs from the estimated amount, the amount recorded as an expenditure corresponds to the invoice amount.

Question 23

The Fire Department of a given city received an appropriation in the amount of $14,000,000 for the fiscal year ended June 30, 2009. During the month ended July 31, 2008, the following transactions occurred: (a) purchase orders were issued in the amount of $600,000; (b) purchase orders, related to (a) above, were filled in the amount of $570,000; the related invoice amount was $567,000; invoices were paid in the amount of $550,000; (c) salaries were accrued and paid in the amount of $610,000. The balance available for the fire department as of July 31, 2008 is:

A) $12,790,000
B) $12,793,000
C) $12,840,000
D) $12,900,000

Question 24

Expenditure is a decrease in fund financial resources (net of liabilities) other than through interfund transfers?

Question 25

All of the following are classification schemes used to meet the needs of financial statement users except

A) Type
B) Activity
C) Character
D) Function

Question 26

All of the following are commonly used major revenue source classes except for

A) Taxes
B) Intergovernmental revenues
C) Fines and Forfeits
D) Transfers from other funds

Question 27

Revenues of governmental fund types should be recognized when:

A) Collected in cash
B) Authorized by the budget ordinance
C) Taxes become delinquent
D) Measurable and available

Question 28

Solid waste collection and solid waste disposal are examples of classification by function.

Question 29

Which of the following items would typically not need an encumbrance?

A) New Building
B) Regular Salaries
C) New Computer
D) Office Equipment

Question 30

Revenues for governmental funds, should be recognized when measurable and available for expenditure in the current period.

Question 31

Governments may create special revenue funds whenever a tax or other revenue source is legislated to be used for a specific purpose, other than capital assets or debt service.

Question 32

GASB requires a reconciliation between the amount shown as GAAP expenditures in the basic financial statements and the amount shown in the budgetary comparison schedule.

Question 33

What is the first step a government takes in acquiring goods or services through the General Fund?

A) Appropriation
B) Expenditure
C) Requisition order
D) Encumbrance

Question 34

An expenditure is defined as a decrease in fund financial resources through interfund transfers.

Question 35

Assume estimated revenues exceed appropriations. When the budget for the General Fund is recorded, the journal entry will include:

A) A credit to Budgetary Fund Balance
B) A credit to Estimated Revenues Control
C) A debit to Appropriations Control
D) A credit to Reserve for Encumbrances

Question 36

Modified accrual accounting records encumbrances when goods are ordered and accrual accounting only records a liability only when goods are received.

Question 37

Assume encumbrances do not expire at year-end. $15,000 was encumbered during the prior year for a computer and the actual cost of the computer in the current year is $12,000. How does this affect unreserved fund balance?

A) Previous Year: increase 15,000; Current Year: decrease 12,000
B) Previous Year: decrease 15,000; Current Year: increase 3,000
C) Previous Year: no effect; Current Year: decrease 12,000
D) Previous Year: decrease 15,000; Current Year: decrease 12,000

Question 38

Ad valorem property tax revenues may not exceed the amount received during the fiscal year plus the amount expected to be received during the first 30 days after the end of the fiscal year.

Question 39

GASB standards ____________ that each governmental reporting entity display ___________ General Fund in its general-purpose financial statements.

A) Recommend, one or more
B) Recommend, only one
C) Require, only one
D) Require, one or more

Question 40

Where is tax-supported long term debt reported?

A) General Fund Balance Sheet
B) Special Revenue Funds Balance Sheet
C) Debt Service Funds Balance Sheet
D) Government-wide Statement of Net Assets

Question 41

A certain government passed its budget for the fiscal year ended December 31, 2009. Estimated Revenues amounted to $13,000,000; Appropriations amounted to $11,900,000; Estimated Other Financing Uses amounted to $800,000; and Estimated Other Financing Sources amounted to $100,000. In the budgetary entry (combining entry):

A) Budgetary Fund Balance would be credited for $400,000
B) Budgetary Fund Balance would be credited for $1,800,000
C) Budgetary Fund Balance would be unchanged
D) Budgetary Fund Balance would be debited for $1,800,000

Question 42

The Police Department of a given city received an appropriation in the amount of $12,000,000 for the fiscal year ended June 30, 2009. During the month ended July 31, 2008, the following transactions occurred: (a) purchase orders were issued in the amount of $500,000; (b) purchase orders, related to (a) above, were filled in the amount of $460,000; the related invoice amount was $463,000; invoices were paid in the amount of $450,000; (c) salaries were accrued and paid in the amount of $480,000. The balance available for the police department as of July 31, 2008 is:

A) $11,000,000
B) $11,007,000
C) $11,010,000
D) $11,017,000

Question 43

Classification of expenditures by function would not include:

A) Public safety
B) General government
C) Capital outlay
D) Sanitation

Question 44

The Revenues account of a government is credited when:

A) Property taxes are recorded
B) Property taxes are collected
C) The budget is recorded in the accounts
D) Budgetary accounts are closed at the end of the year

Question 45

An example of expenditure classification by character would be:

A) Capital outlay
B) Public safety
C) Police department
D) Salaries

Question 46

The Reserve for Encumbrances account is properly considered to be a(an):

A) Current liability if paid within a year; otherwise, long-term debt
B) Equity account; a reservation of fund equity
C) Budgetary account
D) Long-term liability

Question 47

When supplies ordered for use in an activity accounted for in the General Fund of a government are received at an actual price which is less than the estimated price on the purchase order, the Encumbrance Control account is:

A) Credited for the estimated price on the purchase order
B) Debited for the estimated price on the purchase order
C) Debited for the actual price for the supplies received
D) Credited for the actual price of the supplies received

Question 48

In its 2007 Budgetary Comparison Schedule, the amount Park Ridge reports for expenditures (and encumbrances, if applicable) would be:

A) $11,400,000
B) $11,800,000
C) $11,900,000
D) $12,300,000

Question 49

An example of expenditure classification by object would be:

A) Current
B) Public safety
C) Police department
D) Salaries

Question 50

In a budgetary entry, if Appropriations Control exceeds Estimated Revenues Control, the excess would be:

A) Debited to Budgetary Fund Balance
B) Credited to Budgetary Fund Balance
C) Credited to Fund Balance-Unreserved
D) Credited to Fund Balance-Reserved for Encumbrances

Question 51

A Budgetary Comparison Schedule is:

A) Optional under GASB standards for all funds
B) Required by GAAP for internal management reports only; not permitted for external financial reporting
C) Required for all governmental fund types
D) Required for the General Fund and for special revenue funds, for which an annual budget has been adopted

Question 52

In a budgetary entry (combining entry), if Estimated Revenues Control exceeds Appropriations Control, the excess would be:

A) Credited to Fund Balance-Unreserved
B) Debited to Fund Balance-Unreserved
C) Debited to Budgetary Fund Balance
D) Credited to Budgetary Fund Balance

Question 53

The Fire Department of a certain city received an appropriation in the amount of $12,000,000 for the fiscal year ended December 31, 2009. During the month ended January 31, 2009, the following transactions occurred: (a) purchase orders were issued in the amount of $400,000; (b) purchase orders, related to (a) above, were filled in the amount of $370,000; the related invoice amount was $368,000; invoices were paid in the amount of $350,000; (c) salaries were accrued and paid in the amount of $580,000; (d) the appropriation was increased in amount of $10,000. The amount available for the Fire Department as of January 31, 2009 would be:

A) $10,682,000
B) $11,002,000
C) $11,032,000
D) $11,036,000

Question 54

Which of the following results in an expenditure?

A) Place a purchase order
B) Receive goods previously ordered
C) Receive an invoice on goods previously received
D) Payment of an invoice previously received

Question 55

If Budgetary Fund Balance was credited in the process of recording a budget for the General Fund of a governmental unit, it can be assumed that:

A) Estimated Revenues exceed Appropriations
B) Estimated Expenses exceed Actual Revenues
C) Actual Expenses exceed Estimated Expenses
D) Appropriations exceed Estimated Revenues

Question 56

Which of the following results in an encumbrance?

A) Place a purchase order
B) Receive goods previously ordered
C) Receive an invoice on goods previously received
D) Payment of an invoice previously received

Question 57

The amount that Park Ridge would report for expenditures (and encumbrances, if applicable) in its 2007 General Fund Statement of Revenues, Expenditures and Changes in Fund Balances (GAAP Basis) would be:

A) $11,400,000
B) $11,800,000
C) $11,900,000
D) $12,300,000

Question 58

Wages that have been earned by the employees of a governmental unit, but not paid at year-end, should be recorded in the General Fund by a debit to which of the following accounts?

A) Appropriations
B) Encumbrances
C) Expenses
D) Expenditures

Question 59

Reserve for Encumbrances (current year) in excess of a balance of Encumbrances Control indicates:

A) An excess of Vouchers Payable over Encumbrances Control
B) An excess of purchase orders released over invoices received
C) An excess of invoices received over purchase orders released
D) A recording error

Question 60

When a computer which is to be used by an activity accounted for by the General Fund of a governmental unit is received, it should be recorded in the General Fund as a(an):

A) Expenditure
B) Appropriation
C) Encumbrance
D) Capital asset

Question 61

The final appropriations budget:

A) Can be changed at any time by the accounting department
B) Can be exceeded by actual appropriations
C) Is legal and binding
D) None of the above

Question 62

To record the budget for the General Fund

A) Estimated Revenue Control is Debited
B) Expenditure Control is Debited
C) Appropriations Control is Debited
D) Revenue Control is Debited

Question 63

Which of the following is a decrease in fund financial resources other than through interfund transfers?

A) Expenditure
B) Expense
C) Encumbrance
D) Liability

Question 64

At year-end, the balance of Expenditures and Encumbrances accounts are closed to:

A) Fund Balance-Reserved
B) Expenses
C) Expenditure Control
D) Fund Balance-Unreserved

Question 65

The portion of equity that is available for appropriation at year-end is disclosed in what account?

A) Other financing sources
B) Fund Balance-Unreserved
C) Fund Balance-Reserved
D) Fund Balance-Unrestricted

Question 66

When liabilities authorized by an appropriation have been incurred, the appropriation is said to be…

A) Expensed
B) Encumbered
C) Expended
D) Collected

Question 67

The General Fund of the City of X passed a budget, providing for $2,000,000 in anticipated revenues and $1,990,000 in anticipated expenditures. Following the procedures outlined in the text, the journal entries for the control accounts would result in a(an):

A) Credit to Appropriations Control in the amount of $1,990,000
B) Debit to Estimated Revenues Control in the amount of $2,000,000
C) Credit to Budgetary Fund Balance in the amount of $10,000
D) All of the above

Question 68

Estimated Revenues are $4,500,000 and Appropriations are $4,000,000, the journal entry for the budget must include a:

A) Debit to Budgetary Fund balance for 500,000
B) Debit to Encumbrances for 500,000
C) Credit to Budgetary Fund balance for 500,000
D) Credit to Reserve for Encumbrances for 500,000

Question 69

Classifications by function includes all of the following except

A) Debt Service
B) General Government
C) Public Safety
D) Highways & Streets

Question 70

The legal authorization for the administrators of the governmental unit to incur liabilities during the budget period for purposes specified in the appropriations statute or ordinance and not to exceed the amount specified for each purpose is a (an):

A) Encumbrance
B) Appropriation
C) Other financing source/use
D) Expenditure

Question 71

All of the following are budgetary accounts except:

A) Estimated Revenues
B) Appropriations
C) Expenditures
D) All of the above

Question 72

A classification of appropriations and expenditures that deals with the time period involved and includes current expenditures, capital outlays and debt service is:

A) Object
B) Activities
C) Character
D) Function

Question 73

The purpose of an encumbrance is to prevent governments from:

A) Overriding Unauthorized Contracts
B) Overspending
C) Revising the Approved Budget
D) Misappropriating Tax Revenues

Question 74

Purchase orders and contracts result in what for modified accrual accounting and accrual accounting?

A) Expenditure/Liability
B) Expenditure/No entry
C) Encumbrance/Liability
D) Encumbrance/No entry

Question 75

Revenues are raised to finance governmental activities, but revenues may be expended only for purposes and in amounts approved by the legislative branch in compliance with laws of competent jurisdictions, which is known as the

A) Budgetary Fund
B) Encumbered Process
C) Expended Process
D) Appropriations Process

Question 76

The difference between an expenditure and an encumbrance is?

A) An expenditure is the actual amount of an authorized liability and encumbrances are estimates
B) An encumbrance is an expended expenditure
C) There is no difference between the two
D) Expenditures are estimates and encumbrances are not

Question 77

The Jacksonville city government approved the budget for the fiscal year ending December 31, 2009. This includes estimated revenues of $2,750,000. The journal entry to record this would be:

A) DR Estimated Revenues Control…………………….. 2,750,000
B) CR Budgetary Fund Balance…………………………………..2,750,000
C) DR Budgetary Fund Balance…………………………. 2,750,000
D) CR Revenues…………………………………………………..2, 750,000
E) DR Estimated Revenues Control……………………… 2,750,000
F) CR Appropriations Control……………………………………2,750,000
G) DR Estimated Other Financing Sources………………. 2,750,000
H) CR Budgetary Fund Balance…………………………………...2,750,000

Question 78

Revenues in governmental fund accounting…

A) Include taxes, fees, resources provided by other governments and interfund transfers
B) Are recognized in the fiscal year they are available for expenditure
C) Are recognized when earned
D) None of the above describes revenues in governmental accounting

Question 79

At year-end, budgetary authority expires and the balances of Expenditures and Encumbrances accounts are closed to

A) Fund Balance - Unreserved
B) Fund Balance - Reserved
C) Other Financing Uses
D) Other Financing Sources

Question 80

At what point would the general fund account "reserve for encumbrances" be debited?

A) When an item is ordered by the government
B) When an authorized liability is incurred (government receives item)
C) When cash is paid to the vendor
D) (A) or (B) depending on authorized appropriations