Governmental and Nonprofit Accounting Exam 1

capital project funds - answer-financial resources restricted for the acquisition or construction of capital facilities or other capital assets example: construction of firehouse, office buildings, roads - NOT for capital-related outflows financed by proprietary fund (enterprise fund or internal service fund) or fiduciary type trust funds - required to use if capital outlays financed from general obligation bond proceeds - separate fund per project or bond - no capital assets or long-term debt reported in capital projects fund Common Assets/Liabilities of Capital Project Funds: - answer-Common Assets: - cash - temporary investments - receivables - amounts due from other funds or governments Common Liabilities: - accounts payable - construction contracts payable - retainage payable - amounts due to other funds or governments Common Funding Sources: Capital Project Funds - answer-- bond proceeds - intergovernmental grants - transfer in from other funds debt service fund - answer-Financial resources restricted to spending for principal and interest on general long-term debt examples: property taxes and transfers of financial resources for other funds to pay debt service on long-term debt Debt service funds required to use when: - answer-- legally mandated or - financial resources being accumulated for principal and interest payments that come due in future years Common Assets/Liabilities: Debt Service Funds - answer-Common Assets: - cash and investments Common Liabilities: - matured long-term debt principal and interest Common funding sources: debt service funds - answer-- transfer in from general fund or other funds - property taxes assessed specifically to service debt - investment earnings permanent fund - answer-resources restricted to the extent that only earnings (not principal) may be used to support the government's programs or its citizens example: public cemetery perpetual care fund, library endowment - doesn't include private-purpose trust funds Common Assets/Liabilities/Revenue: Permanent Funds - answer-Common Assets: - Cash and investments Common Liabilities: - amounts due to other funds Common Revenue: - investment income Revenue Recognition: governmental-type funds - answer-- measurable - available (resources collectible within current period or soon enough thereafter to pay current bills) Expenditure Recognition: governmental-type funds - answer-- decreases in financial resources - 3 types of expenditures: operating, capital outlay, and debt service 3 types of expenditures: definitions - answer-1) operating - generally record when liability incurred 2) capital outlay - record when financial resources are used to acquire capital assets 3) debt service - record when long-term debt principal or interest is due for payment Financial Statements: governmental-type funds - answer-- balance sheet - statement of revenues, expenditures, and changes in fund balance Governmental-Type Fund Accounting Equation - answer-Financial Assets = Short-term and Matured Long-term Liabilities + Fund Balance financial assets include: - answer-- cash - investments - receivables - inventory - prepaid items short-term liabilities include: - answer-- accounts payable - vouchers payable - salaries payable - payable to other funds matured long-term liabilities include: - answer-matured portion of long-term debt (due and payable) 2 Proprietary Type Funds - answer-1) enterprise fund 2) internal service fund enterprise fund - answer-activities that supply goods and services, for a fee, to users who are entirely or primarily external to the government examples: municipal airport, municipal electric utility, mass transit, toll roads and bridges, parking facilities, lotteries - primarily to external users - typically, separate fund for each activity enterprise funds required if: - answer-- debt secured only by net revenues of activity (revenue bonds) - law requires costs of providing services be recovered through fees and charges, or - pricing intended to cover costs internal service fund - answer-activities that supply goods or services, based on cost reimbursement, within the government itself and to other governments examples: central motor pool, central purchasing function Measurement focus and Basis of Accounting: Proprietary type funds - answer-- economic resources measurement focus - accrual basis of accounting (provides accurate measure of revenues and expenses to help determine user chargers) Financial Statements: Proprietary type funds - answer-- statement of net position (balance sheet) - statement of revenues, expenses, and changes in net position (operating statement) - statement of cash flows (only place you'll see this in government) fiduciary funds - answer-used when assets held by government in trust funds or custodial capacity for other individuals, other governments, or private organizations **cannot be used to support government's own programs Measurement Focus and Basis of Accounting: Fiduciary Funds - answer-- economic resources measurement focus - accrual basis of accounting 4 Fiduciary Type Funds - answer-1) pension (and other employee benefit) trust funds 2) investment trust funds 3) private-purpose trust funds 4) custodial funds Pension (and other employee benefit) Trust Fund - answer-resources held in a trust that meets certain, for employee retirement plans and other employee benefit plans examples: defined benefit pension plan, retiree health benefit plan Investment Trust Fund - answer-resources of an external investment pool or individual investment account management by a sponsoring government and held in a trust that meets certain criteria example: the portion of an external investment pool that belongs to other governments private-purpose trust fund - answer-resources of trust arrangements, other than those reported in pension and investment trust funds, that meet certain criteria example: unclaimed property when held as a fiduciary activity; assets may include bank accounts, investment accounts, an other property held pending claim by rightful owners custodial fund - answer-fiduciary activities other than those required to be reported in pension, investment, or private-purpose trusts examples: sales or property taxes collected by a government on behalf of another government Financial Statements: fiduciary funds - answer-- statement of fiduciary net position - statement of changes in fiduciary net position (additions and deduction reported rather than revenues and expenses) What is a balanced budget? - answer-revenues and amounts available from previously accumulated fund balance equal the appropriations **states and many municipalities are required to have a balanced budget Types of Budgets: - answer-- operating budget - capital budget operating budget - answer-typically for a fiscal year: - day-to-day activities - annual or biennial - at least general fund and significant special revenue funds (prior year actual, estimated current year) capital budget - answer-plans for long-lived assets: - land, buildings, equipment - critical for debt planning Budgetary Approaches - answer-- Object of Expenditure - Performance and Planning-Programming-Budgeting - Zero-Based Budgeting Budget Process - answer-a continuous cycle where evaluation of current-year performance affects next-year's budget; lengthy and formal process that takes several months Steps in Budget Process - answer-1) prepare budgetary policy guidelines 2) prepare the budget calendar 3) prepare and distribute budget instructions 4) prepare revenue estimates 5) prepare departmental (or program) expenditure requests 6) prepare non-departmental expenditure and interfund transfer requests 7) prepare departmental capital outlay requests, if appropriate 8) review (by the central budget office) all departmental budget requests 9) prepare the budget document and present it to the legislative budget 10) adopt the budget after consideration by the legislative body Service Efforts and Accomplishments (SEA) - answer-- data may be used to supplement budget requests to show expected accomplishments - data may include: description of the function, inputs, outputs, outcome **inputs = service efforts** **outputs = quantities** **outcome = results** Raising Revenues - answer-- legislative body must raise revenues to meet budget expenditures - most revenues are result of previous legislative action (personal income taxes, sales tax rates, license fees) - property taxes requires legal action on part of the legislative body Property Tax Assessment: 2 Approaches - answer-1) assessed value of property (less exemptions) multiplied by a flat (permanently fixed by law) tax rate 2) assessed value of property (less exemptions) multiplied by a tax (millage rate) **second approach is more common **