Question 1

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

Accepted Answer

Budgetary accounts are temporary accounts and are closed at the end of the fiscal year. They begin with a zero balance at the start of the fiscal year.

Question 2

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.

Accepted Answer

This is true according to GASB 34, which requires a reconciliation between GAAP expenditures and the budgetary basis. This ensures that users of the financial statements can understand any differences between what was budgeted and what was actually spent.

Question 3

When purchase orders are filled and the invoice amount differs from the estimated amount,the amount reversed from the encumbrance account equals the invoice amount.

Accepted Answer

When purchase orders are filled and the invoice amount differs from the estimated amount, the amount reversed from the encumbrance account equals the amount of the original purchase order. A liability will be recorded for the invoice amount.

Question 4

The modified accrual basis is a distinct system of accounting that:

Accepted Answer

The modified accrual basis records expenditures and fund balances, which is different from both accrual accounting and cash basis accounting. While it does recognize some long term assets and liabilities, such as bond issuances and capital acquisitions, it does not recognize all long term items such as depreciation.

Question 5

Revenues for governmental funds should be recognized when measurable and earned.

Accepted Answer

Revenue recognition occurs when the resulting resources are deemed to be both measurable and available to finance expenditures of the current period.

Question 6

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

Accepted Answer

An appropriation is a form of authorization given by the legislature to spend money for specific purposes in a given fiscal year. It allows administrators to incur liabilities and make payments on behalf of the government, within the limits set by the appropriations act.

Question 7

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

Accepted Answer

The unexpended appropriations balance refers to the amount of funds that have been appropriated for a government program, but have not yet been spent. Therefore, it can be used to determine how much a government has available to spend without going over budget.

Question 8

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

Accepted Answer

Appropriation is the legal process of providing funds for a specific purpose by a legislative body or other authorized entity. It provides the necessary authority and limits for the spending of public funds by government administrators. Therefore, the statement is true.

Question 9

Transfers from one fund to another are classified as expenditures in the fund making the transfer.

Accepted Answer

Expenditures are outflows of net financial resources from sources other than interfund transfers that are recognized when a governmental fund incurs a liability pursuant to budgetary authority provided by appropriation.

Question 10

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.

Accepted Answer

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

Question 11

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

Accepted Answer

Encumbrances are used to record commitments of the government to purchase capital assets, goods or services. Encumbrances are not recorded for recurring expenditures such as regular salaries.

Question 12

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.

Accepted Answer

Typically, budget-actual comparisons are schedules in RSI. Governments may also elect to provide those comparisons as one of the basic statements rather than as a schedule. The schedule must provide the original budget, the final budget and the actual amounts of revenues, expenditures and other financing sources and uses. The amounts in the actual column are to be reported on the basis required by law for budget preparation, even if that basis differs from the basis provided in the GASB standards.

Question 13

The journal entry to record a purchase order in the General Fund would be a debit to encumbrances control account and credit Accounts Payable

Accepted Answer

A purchase order in the General Fund is recorded by debiting the Encumbrances Control account and crediting the Budgetary Fund Balance - Reserve for Encumbrances, not Accounts Payable.

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

Expenditure classification by character includes current expenses (which include wages, supplies, and other expenses related to the day-to-day operations of a government), capital outlay (which includes expenditures on long-term assets such as buildings, equipment, and infrastructure), and debt service (which includes payments on loans and other forms of borrowing).

Question 16

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

Accepted Answer

In modified accrual accounting, encumbrances are recorded when goods are ordered as a way of reserving funds to cover the expected liability, while in accrual accounting, the liability is only recorded when the goods are received and an invoice is issued.

Question 17

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

Accepted Answer

Expenditure is defined as a decrease in fund financial resources (net of liabilities) other than through interfund transfers. Therefore, the statement is true.

Question 18

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.

Accepted Answer

Governments can create special revenue funds for specific purposes other than capital assets or debt service, by legislating a tax or revenue source to be used for that purpose.

Question 19

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

Accepted Answer

Encumbrances are recorded when a commitment is made to make a future expenditure, such as when a purchase order or contract is approved, but they are not actually recorded as an expense until the goods or services are received and the liability is incurred.

Question 20

The Township of Thomasville's General Fund has the following net resources at year end:
•$77,000 of prepaid insurance
•$375,000 rainy day fund approved by the township governing board with specific conditions for its use
•$2,500 of supplies inventory
•$61,000 state grant for snow removal
•$150,000 contractual obligations for the purchase of equipment
•$200,000 to be used to fund government operations in the future
•Outstanding encumbrance of $80,000 for the purchase of furniture & fixtures (assume no contractual obligation)
-What would be the total Nonspendable fund balance?

Accepted Answer

The nonspendable fund balance includes amounts that cannot be spent either because they are not in spendable form or they are legally or contractually required to be maintained intact.

The following items are considered nonspendable:
- Prepaid insurance: This is not available for spending until the coverage is provided.
- Supplies inventory: This is not a spendable resource until used.
- Outstanding encumbrance: This is not spendable until the purchase is completed.

Therefore, the total nonspendable fund balance is $2,500 + $77,000 + $80,000 = $79,500.

The other items are either restricted, committed, or assigned funds, and are not considered nonspendable.

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