Question 1

The GASB sets accounting and reporting standards for state and local governmental budgets.

Accepted Answer

Even if not required by local law, the GASB strongly recommends that governments use budgets and requires budgetary presentations to be presented in GAAP financial statements for the General Fund and each major Special Revenue Fund that has a legally adopted budget. However, only state legislators can require budgets and set standards for preparing them.

Question 2

Balanced budgets are defined identically between state and local governments and therefore are comparable across the country.

Accepted Answer

Balanced budgets are the norm for fiscal behavior across the country. However, economic and demographic issues and management causes them to be different. For example, "balanced budgets" may be achieved by some governments simply by not budgeting for certain expenditures that are attributable to the current period.

Question 3

The total of all departmental operating budgets along with estimated capital outlays by department and estimates of expenditures that will affect all departments (such as pension benefits and claims and judgments) are added together to provide the basis for the budget that is submitted to the legislature.

Accepted Answer

When preparing a budget, governments use detailed department budgets as a starting point. Capital costs are also estimated by each department based on next year's goals and activities. Finally, estimated expenditures for things that affect more than one department (such as pensions) are added

Question 4

After raising its revenues, a city may begin to determine what expenditures it can make.

Accepted Answer

The process is the opposite. Once a government's legislature adopts its budget for expenditures and estimated revenue, it must begin raising the revenues it needs to finance its budget.

Question 5

Most governments also prepare a cash forecast to help them determine when they will need to borrow money or when they may be able to invest in securities until the cash is needed.

Accepted Answer

Most governments' tax revenues due dates occur only once or twice a year, for example, many governments collect property taxes once a year. If this collection date is early in the year, governments may invest their revenues until expenditures are incurred. If tax is collected only at mid-year, local governments may need to issue tax-anticipation notes (TANs) to provide cash until the collection date.

Question 6

Property owned by governments, churches, and other nonprofits often are exempt from paying property taxes.

Accepted Answer

Property held by other governments (and certain other entities, like religious organizations) is not subject to property taxes.

Question 7

State and local government spending limitations ensure the budget is balanced not only at beginning of the year but also at the end of the year.

Accepted Answer

The nature of these spending limitations differs among jurisdiction, but their purpose is ensure that a government's budget should be balanced at year-end.

Question 8

Comparing actual expenditures with planned expenditures at points along the year allows governments to take corrective action on their budgets.

Accepted Answer

Implementation of these control mechanisms helps governments implement their budget and provides time for governments to take corrective action.

Question 9

The legal level of control is the point at which another government or a state legislature must step in and take control over another government's spending.

Accepted Answer

The legal level of control is the lowest level of budgetary detail at which a state or local government's budget officer may reassign budgetary resources without getting the approval of the government's legislative body or governing authority.

Question 10

The basic principle of governmental accounting is that budgetary and accounting systems should be integrated and use common classifications and terminology.

Accepted Answer

Using the same classification schemes in both a government's budget and in its accounting system allows governments to classify revenues and expenditures in the same manner and provides the structure needed to allow governments to prepare and monitor their budgets.

Question 11

There are up to five expenditure subclassifications within government's budgets. The classification scheme for revenues is much simpler-fund and source.

Accepted Answer

Classification of revenues is fairly simple; they usually are broken down only by fund in which they will be reported and by their source. Expenditures, on the other hand, are often broken down into five subclassifications-fund, function or program, organizational unit, activity, and object. This detail provides the level of detail needed for monitoring expenditures and preparing future budgets.

Question 12

Using a government's expenditure classifications is not difficult because each lower-level subclassification rolls up into the next higher-level subclassification.

Accepted Answer

Although this multilevel classification system may appear complex, it is not difficult to work with because the lower-level subclassifications "roll up" into higher-level subclassifications.

Question 13

Recording budgetary entries in a government's financial ledger helps the government set reference points for budgetary controls.

Accepted Answer

The purpose of recording estimated revenues and appropriations is to establish reference points for budgetary controls. At any time during the year, government officials can compare the estimated revenues with actual revenues to see if the estimates are being met.

Question 14

When budgets are incorporated into a government's ledger, officials are able to tell when expenditures have exceeded budgeted amounts. To correct this, governments must find additional revenue sources.

Accepted Answer

Governments may certainly chose to "find" additional revenues, but more likely than not officials will ask departments to "hold the line" on spending, for example by not filling vacant positions, to help ensure the budget is balanced a year-end.

Question 15

Budgetary interchanges allow a government to increase budgetary appropriations in one area and simultaneously reduce one of its other appropriations.

Accepted Answer

A budgetary interchange will, for example, authorize a department to spend an additional amount for salaries and simultaneously reduce the amount of spending authorized for departmental supplies.

Question 16

From a budgetary perspective, when a government records an encumbrance it means an amount that it appropriated is no longer available for the government to spend.

Accepted Answer

From a government's budgetary perspective, a portion of the appropriation effectively is "used up," or encumbered, at the point it orders supplies-even though the supplies have not yet been received.

Question 17

Encumbrances are not always recorded; some appropriations are drawn down in predicable patterns and encumbrances serve no control purpose.

Accepted Answer

The purpose of recording encumbrances is to provide control over an appropriation characterized by expenditures that are unpredictable as to timing and/or amount, or in cases in which a single appropriation supports geographically dispersed activities. In contrast, some appropriations are drawn down by expenditures in predictable patterns, such as monthly payments on a rental contract.

Question 18

When governmental accountants prepare a journal entry to reverse an encumbrance, they reverse the encumbrance for the invoice amount provided by the supplier.

Accepted Answer

A journal entry to reverse the encumbrance must be in the same amount as the amount originally encumbered; only an expenditure is recorded for the actual invoice amount.

Question 19

An allotment system is another level of budgetary control that some governments use.

Accepted Answer

When allotment systems are used, the central budget office divides annual appropriations by into time-based allotments, usually for a quarter-year at a time. When used, this system permits departments to spend no more than the amount of their quarterly allotment rather than their annual appropriation. It allows governments to react rapidly to changing economic conditions by reducing the amount the departments may spend in the latter part of the year.

Question 20

Based on the language of the some of the laws requiring "balanced budgets," which of the following events are possible?

Accepted Answer

A proposed budget when submitted to the legislative body, when legally adopted, and at start of year is balanced in the sense that budgeted expenditures do not exceed amounts predicted to be available for that year. Few legislatures require budgets to be balanced, however, when the year end is completed. Some budgets may be "balanced" in many ways that are inconsistent with the concept. For example to achieve "balance," some governmental managers may overestimate the amount of revenue a government expects to receive, omitting or underestimate certain expenditures, or set up expenditures so that they don't have to be paid in cash until well after the budget year.

Quiz 3: Budgetary Considerations in Governmental Accounting