Deck 17: Introduction to Fund Accounting

Question 1

The following related entries were recorded in sequence in the general fund of a municipality: The sequence of entries indicates that

A)an adverse event was foreseen and a reserve of $15,000 was created; later the reserve was cancelled and a liability for the item was acknowledged.
B)an order was placed for goods or services estimated to cost $15,000; the actual cost was $15,350 for which a liability was acknowledged upon receipt.
C)encumbrances were anticipated but later failed to materialize and were reversed.A liability of $15,350 was incurred.
D)the first entry was erroneous and was reversed; a liability of $15,350 was acknowledged.

Answer 1

B

Question 2

In accounting for and reporting inventory in the financial statements, the "Reserve for Inventory" account is used under

A)the consumption method.
B)the purchase method.
C)both the consumption and purchase methods.
D)none of these.

Answer 2

B

Question 3

Governmental units include all of the following except

A)counties.
B)school districts.
C)industrial development districts.
D)voluntary health and welfare organizations.

Answer 3

D

Question 4

The expendable fund entity's measurement focus is on:

A)the flow of current financial resources.
B)the flow of economic resources.
C)the flow of revenue, expenses, and net income.
D)none of the above.

Question 5

The reserve for encumbrances account is properly considered to be a

A)current liability if payable within a year; otherwise, long-term debt.
B)fixed liability.
C)floating debt.
D)reservation of the fund's equity.

Question 6

The two basic statements prepared for expendable fund entities are a balance sheet and a(n)

A)income statement.
B)statement of revenue.
C)statement of expenditures and encumbrances.
D)none of these.

Question 7

The "reserve for encumbrances-prior year" account represents amounts recorded by a governmental unit for

A)anticipated expenditures in the next year.
B)expenditures for which purchase orders were made in the prior year but disbursement will be in the current year.
C)excess expenditures in the prior year that will be offset against the current-year budgeted amounts.
D)unanticipated expenditures of the prior year that become evident in the current year.

Question 8

When budgeted expenditures are enacted into law, they are referred to as

A)estimated expenditures.
B)encumbrances.
C)appropriations.
D)expenditures.

Question 9

The Expenditures account of a governmental unit is debited when:

A)the budget is recorded.
B)supplies are ordered.
C)supplies encumbered are received.
D)the supplies invoice is paid.

Question 10

The entry to record the receipt of office equipment previously encumbered includes a debit to

A)Office Equipment.
B)Encumbrances.
C)Reserve for Encumbrances.
D)both Office Equipment and Reserve for Encumbrances.

Question 11

The GASB has the responsibility for establishing financial accounting standards for all of the following entities except:

A)state and local government entities.
B)veterans hospitals.
C)school districts.
D)civic organizations.

Question 12

If a credit was made to the fund balance in the process of recording a budget for a governmental unit, it can be assumed that

A)estimated expenses exceed actual revenues.
B)actual expenses exceed estimated expenses.
C)estimated revenues exceed appropriations.
D)appropriations exceed estimated revenues.

Question 13

The entry to close appropriations, expenditures, and encumbrances accounts includes a debit to

A)Appropriations.
B)Expenditures.
C)Encumbrances.
D)both Appropriations and Encumbrances.

Question 14

In accounting for expendable fund entities, revenue is ordinarily not recognized until:

A)it can be objectively measured and it is available to finance expenditures of the current period.
B)a transaction has taken place and the earnings process is complete.
C)it has been received in cash.
D)none of the above.

Question 15

Which type of fund entities are used to account for the activities of nonbusiness organizations that are similar to those of business enterprises?

A)Expendable fund entities
B)Proprietary fund entities
C)Budgetary fund entities
D)Restricted fund entities

Question 16

What journal entry should be made at the end of the fiscal year to close out encumbrances for which goods and services have not been received?

A)Debit reserve for encumbrance and credit encumbrances.
B)Debit reserve for encumbrances and credit fund balance.
C)Debit fund balance and credit encumbrances.
D)Debit encumbrances and credit reserve for encumbrances.

Question 17

The term used to describe the application of accounting to expendable fund entities is the

A)accrual method.
B)cash method.
C)modified cash method.
D)modified accrual method.

Question 18

Under GASB Statement No.34, a government-wide financial statement should include a:

A)statement of revenues & and expenses.
B)statement of activities.
C)statement of financial position.
D)notes to the financial statements.

Question 19

Customers' meter deposits which cannot be spent for normal operating purposes would be classified as restricted cash in the balance sheet of which fund?

A)Internal Service
B)Trust
C)Agency
D)Enterprise

Question 20

Which of the following requires the use of the encumbrance system?

A)Capital projects fund
B)Debt service fund
C)Internal service fund
D)Enterprise fund

Question 21

Is the year-end balance in the Reserve for En-cumbrances account a liability? Explain.

Question 22

What characteristics distinguish nonbusiness organizations from profit-oriented enterprises?

Question 23

Why may it be difficult or impossible for a governmental unit to determine the total cost of performing a particular activity or function?
Business Ethics Question from the Textbook
At State College, where football has long reigned asking and fans are near fanatical in their attendance, the frenzy for football tickets has recently reached an all-time high.With requests for home game tickets at an unprecedented level, prices on everything from parking passes to hotel rooms to home rentals have soared beyond belief.Parking passes were going for $500 on eBay, and hotel rates have doubled-and in some cases nearly tripled-reaching as high as $650 per night at some hotels.

Question 24

Distinguish between an appropriation, an en-cumbrance encumbrance, an expenditure, and a disbursement.

Question 25

What is the significance of the "unreserved fund balance" of an expendable fund entity?

Question 26

Explain the purposes of encumbrance accounting.Might encumbrance accounting be used by commercial enterprises?

Question 27

Explain and justify the difference between the treatment of estimated uncollectible taxes in fund accounting and the treatment of estimated bad debts in commercial accounting.

Question 28

What are the revenue-recognition criteria for expendable fund entities? How do these criteria differ from revenue-recognition criteria for profit-oriented enterprises?

Question 29

What columns would you suggest for a subsidiary ledger account in order that it might be a subsidiary not only to the "appropriations" control account but also the "encumbrances" and the "expenditures" control accounts?

Question 30

What are the major classifications of increases and decreases in expendable fund resources?

Question 31

Define a fund as the term is applied in accounting for the activities of governmental units and other nonbusiness organizations.

Question 32

How does the adoption of a budget for a general fund entity differ from the adoption of a budget by a commercial unit?

Question 33

Describe the principal financial statements used to report on the activities and status of expendable fund entities.

Question 34

Why is depreciation on fixed assets not recorded in the records of expendable fund entities?

Question 35

Distinguish between an expense and an expenditure.

Question 36

Expenditures may be classified by function, activity, object, or organizational unit.Give an ex-ample of each classification for a municipality.Which classification is the most appropriate for
external financial reporting?