Advanced Accounting Chapter 7 EXAM 100% SOLVED

Advanced Accounting Chapter 7 EXAM 100% SOLVED What is the cause-and-effect relationship between the revenues and the expenses of a proprietary fund? - ANSWERThe "cause and effect" relationship between the revenues and expenses of a proprietary fund refers to the fact that the expenses of these funds are incurred to generate revenues. Generally, as the level of services provided by a proprietary fund increases and expenses increase, the total revenues received for the services will also increase. This is in contrast with a governmental- type fund where there is no relationship between expenditures and revenues (see Q7-2). Why are the revenues and expenditures of governmental-type funds "independent" of each other? - ANSWERThe revenues and expenditures of governmental- type funds are "independent" of each other because the expenditures relate to the level of services provided by the governmental unit. While the level of revenues should be sufficient to finance the expenditures, the providers of revenues do not generally receive services in proportion to the amount of revenue provided. When should an Internal Service fund be used? - ANSWERAn Internal Service Fund should be used when a governmental unit can provide goods or services to other departments or governments at a lower cost or in a more convenient or dependable manner than if an outside organization were used. Also, the economic resources measurement focus / full accrual basis of accounting used by Internal Service Funds allows them to recoup all costs, enabling replenishment of capital resources through their billings. What is a flexible budget? - ANSWERA flexible budget is a budget in which the level of budgeted expenses is related to the level of operations as opposed to a pre-determined level independent of the level of operations.