Question 1

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 2

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.

Question 3

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 4

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 5

Capital assets acquired are recorded as an expenditure of their total value in the year that they are purchased.

Accepted Answer

Capital assets are recorded as assets on the balance sheet and their cost is depreciated over their useful life, rather than being expensed in the year of purchase.

Question 6

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

This is because the transfer of cash from the general fund to a debt service fund for the purpose of paying interest on debt does not involve an exchange or reciprocal transaction. Instead, it is a one-way flow of resources intended to fulfill a specific obligation, thus classified as a nonreciprocal transfer-out.

Question 7

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

Accepted Answer

Government-wide statements are designed to provide a broad overview of the government's finances, in contrast to fund financial statements that focus on specific governmental funds. These statements present the financial activities from the perspective of the government as a whole, incorporating all its funds and activities.

Question 8

Per GASB standards, governments must report general capital assets or depreciation in governmental funds.

Accepted Answer

According to GASB standards, general capital assets and depreciation are not reported in the governmental funds financial statements. Instead, they are reported in the government-wide financial statements, which present a broader view of the government's finances.

Question 9

Governmental fund liabilities are considered current only when they must be liquidated with expendable available financial resources

Accepted Answer

Governmental fund liabilities are classified as current if they are expected to be liquidated with expendable available financial resources, reflecting the short-term financial perspective of governmental funds.

Question 10

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 City Motor Pool Internal Service Fund would use the accrual basis of accounting because internal service funds are proprietary funds, which follow the accrual basis of accounting.

Question 11

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

Accepted Answer

Under the consumption method, inventory is recorded as an asset when purchased and expensed as used, requiring a reclassification of fund balance to nonspendable to reflect the portion of inventory not yet consumed.

Question 12

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 13

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 14

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 15

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 16

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 fund financial statements because it does not conform to the modified accrual basis of accounting typically used in governmental fund financial statements.

Question 17

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

Governments typically budget for principal and interest payments in the fiscal period in which these payments are due, rather than setting aside resources in advance for future payments. This approach aligns with cash-based accounting practices, where transactions are recognized when cash is exchanged.

Question 18

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

Accepted Answer

Expenditures refer to the spending of money to acquire goods or services, recognized when the resources are acquired. Expenses, however, are recognized when these resources are consumed in the process of generating revenue, reflecting the cost of doing business.

Question 19

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 20

In a governmental fund, expenditures for wages and salaries should be recognized in the period in which the employees receive their paychecks.

Accepted Answer

In governmental fund accounting, expenditures for wages and salaries are recognized in the period in which the employees earn the wages, not when they are paid. This is in accordance with the accrual basis of accounting, which recognizes expenses when they are incurred rather than when payment is made.

Quiz 5: Recognizing Expenditures in Governmental Funds