Finance Flashcards

A government entity uses the modified accrual basis of accounting. When should revenues be recognized under this method?

Answer: When measurable and available to finance current-period expenditures

Under modified accrual, revenues are recognized when they are measurable and available (collectible within 60 days after year-end) to finance current-period expenditures.

Which of the following best describes an encumbrance in governmental accounting?

Answer: A reservation of appropriations for anticipated purchase commitments

Encumbrances represent commitments related to unperformed contracts, reserving appropriation authority so funds are not overspent before goods or services are received.

A CGAP candidate reviews a government's capital project fund. Which of the following transactions would NOT typically be recorded in a capital project fund?

Answer: Routine maintenance expenses for an existing road

Routine maintenance of existing assets is an operating expenditure recorded in the general fund, not in a capital projects fund, which accounts for major capital acquisitions.

Under GASB standards, which measurement focus is used for governmental funds?

Answer: Current financial resources measurement focus

Governmental funds use the current financial resources measurement focus, reporting only current assets and current liabilities and their effect on fund balance.

A government issues $5 million in general obligation bonds at a premium of $200,000. In the governmental funds, how should the premium be reported?

Answer: As an other financing source in the fund receiving the proceeds

Bond premiums are reported as other financing sources in the fund that receives the bond proceeds, separate from the par value of the bonds.

Which type of budget is most commonly adopted by state and local governments and carries legal authority to spend?

Answer: Appropriated budget

The appropriated (or legal) budget is formally adopted by the legislative body and establishes the legal authority and spending limits for a fiscal year.

An auditor discovers that a government department's actual expenditures exceed its appropriation by 3%. What is the most significant concern?

Answer: The government may have violated its legal spending authority

Exceeding an appropriation violates the legal budget authority granted by the legislative body, which is a compliance violation regardless of whether internal controls are otherwise adequate.