Question 1

When accounting for inventory items in a governmental fund, a reclassification of the appropriate portion of fund balance is always required when the consumption method is used.

Accepted Answer

When using the consumption method to account for inventory items in a governmental fund, the cost of the items is recognized as an expenditure as they are consumed. This requires a reclassification of the appropriate portion of fund balance to reflect the reduction in assets and increase in expenditures.

Question 2

If recording a general long-term liability in a governmental fund upon issuing a bond, the credit should be to a bonds payable account.

Accepted Answer

In governmental fund accounting, the issuance of long-term debt like bonds is not recorded as a liability (bonds payable) in the fund financial statements. Instead, the proceeds are recorded as other financing sources, reflecting the inflow of resources.

Question 3

A transfer of cash from the general fund to a debt service fund to pay interest on debt should be recorded in the general fund as a nonreciprocal transfer-out.

Accepted Answer

A transfer from the general fund to a debt service fund for interest payments is not a reciprocal transaction because the general fund does not receive anything in return from the debt service fund. Therefore, it should be recorded as a nonreciprocal transfer-out in the general fund's accounting records.

Question 4

When accounting for inventory items in a governmental fund, GASB standards permit the use of the consumption method only.

Accepted Answer

GASB standards allow for both the consumption method and the purchases method when accounting for inventory items in a governmental fund.

Question 5

Which of the following funds would use the modified accrual basis of accounting in preparing its fund financial statements?
A)City Electric Utility Enterprise Fund.
B)City Hall Capital Projects Fund.
C)City Motor Pool Internal Service Fund.
D)City Employee Pension Trust Fund.

Accepted Answer

The City Hall Capital Projects Fund would use the modified accrual basis of accounting because it is a governmental fund. Modified accrual accounting is typically used by governmental funds, while proprietary and fiduciary funds (like enterprise, internal service, and pension trust funds) use the full accrual basis of accounting.

Question 6

Governmental fund liabilities are considered current only when they must be liquidated with expendable available financial resources-not, as in businesses and in the government-wide statements, when they must be paid within a year.

Accepted Answer

Governmental fund liabilities are considered current only when they can be liquidated with available financial resources, and not based on a time frame. This is different from businesses and the government-wide statements, where liabilities are considered current if they must be paid within a year.

Question 7

Prepaid expenses such as for insurance are classified as deferred outflows, rather than as assets.

Accepted Answer

Prepaid expenses, including prepaid insurance, are classified as current assets on the balance sheet because they represent future economic benefits that the company has already paid for. Deferred outflows are a separate category used under governmental accounting standards and do not typically apply to prepaid expenses in traditional business accounting.

Question 8

Compensated absences, such as vacation pay and sick leave, should be accounted for on the accrual basis in governmental funds.

Accepted Answer

In governmental funds, expenditures for compensated absences such as vacation pay and sick leave are typically recognized when due (i.e., when the leave is actually taken or paid out), not on the accrual basis, due to the modified accrual accounting used by these funds.

Question 9

Per GASB standards, governments do not report general capital assets or depreciation in governmental funds.

Accepted Answer

GASB standards require governments to report general capital assets and depreciation in the government-wide financial statements, but not in the governmental funds. This is because governmental funds are focused on short-term financial resources and do not reflect the long-term investment in capital assets.

Question 10

The purchases method is consistent with full accrual basis of accounting.

Accepted Answer

The purchases method is typically associated with the cash basis or modified accrual basis of accounting, not the full accrual basis, which recognizes revenues when earned and expenses when incurred, regardless of the timing of cash flows.

Question 11

Assume that the City of Juneau maintains its books and records to facilitate the preparation of its fund financial statements.The city pays its employees bi-weekly on Friday.The fiscal year ended on Wednesday, June 30.Employees had been paid on Friday, June 25.The employees paid from the general fund had earned $90,000 on Monday, Tuesday, and Wednesday (June 28, 29, and 30).What entry, if any, should be made in the city's general fund on June 30?
A)Debit Expenditures $90,000; credit Wages and salaries payable $90,000.
B)Debit Expenses $90,000; credit Wages and salaries payable $90,000.
C)Debit Expenditures $90,000; credit Encumbrances $90,000.
D)No entry is required.

Accepted Answer

Since the employees had earned $90,000 before the end of the fiscal year, but had not yet been paid, the city should record this as an expenditure and credit Wages and salaries payable. Therefore, the correct entry to be made in the city's general fund on June 30 is debit Expenditures $90,000 and credit Wages and salaries payable $90,000. Choice A correctly reflects this entry. Choice B is incorrect because the term Expenses is not used in governmental accounting. Choice C is also incorrect because Encumbrances apply to future expenditures and not past expenditures. Choice D is incorrect because an entry is necessary to record the wages earned but not yet paid.

Question 12

Which of the following funds would use the accrual basis of accounting in preparing its fund financial statements?
A)City General Fund.
B)City Hall Capital Projects Fund.
C)City Motor Pool Internal Service Fund.
D)None of the above.

Accepted Answer

The answer of Which of the following funds would use...

Question 13

Proceeds of debt intended to finance general capital assets should be reported in the fund financial statements as a fund liability.

Accepted Answer

The answer of Proceeds of debt intended to finance general...

Question 14

Expenditures are generally recognized when resources are acquired; expenses when resources are consumed.

Accepted Answer

This statement is true. According to the accrual accounting method, expenditures are recognized as assets when resources are acquired, and then expenses are recognized when those assets are consumed.

Question 15

Most governments budget (appropriate)resources for principal and interest only for the period in which a payment is due-not for future payments.

Accepted Answer

Most governments budget resources only for the period in which a payment is due. They do not budget for future payments.

Question 16

In a governmental fund, expenditures for wages and salaries should be recognized in the period in which the employees earn them.

Accepted Answer

According to the accrual basis of accounting, expenditures for wages and salaries should be recognized in the period in which the employees earn them, even if the payment is not made until a later period. This is consistent with the recognition of revenues, which are recognized in the period in which they are earned, regardless of when the cash is received.

Question 17

Government-wide statements present revenues and expenses from the perspective of the government, not of individual funds.

Accepted Answer

Government-wide statements provide a comprehensive view of a government's financial situation as a whole, including all its funds and activities. They are different from fund financial statements, which provide information about individual funds and their revenues and expenses.

Question 18

In budgeting for governmental funds, governments appropriate the resources for general capital assets in the periods when they are to be purchased, not in the periods in which the assets will be used.

Accepted Answer

In governmental fund accounting, appropriations for the purchase of general capital assets are typically made in the fiscal period in which the assets are to be acquired, rather than in the periods in which the assets will be utilized. This approach aligns with the modified accrual basis of accounting used by governmental funds, where expenditures are recognized in the period in which they are incurred.

Question 19

Use of the consumption method of accounting for inventory is not acceptable for the fund financial statements.

Accepted Answer

The consumption method of accounting for inventory is not acceptable for the fund financial statements as it does not provide information about the amount and value of inventory on hand at the end of the accounting period. Instead, the purchases method or other recognized costing methods should be used to determine the inventory value for the fund financial statements.

Question 20

As used in government accounting, expenditures are decreases in
A)Net assets.
B)Net current financial resources.
C)Net cash.
D)Net economic resources.

Accepted Answer

In government accounting, expenditures are considered decreases in net current financial resources, reflecting the consumption of resources or the creation of liabilities that affect the current period's resource availability.

Quiz 5: Recognizing Expenditures in Governmental Funds