CGFM Governmental Accounting and Fund Accounting 2 — Questions and Answers
Question 1: Which GASB statement established the current framework for fund accounting in state and local governments?
- GASB Statement No. 27
- GASB Statement No. 34 (Correct answer)
- GASB Statement No. 45
- GASB Statement No. 54
Correct answer: GASB Statement No. 34
GASB Statement No. 34 established the basic financial reporting model including government-wide and fund financial statements used today.
Question 2: A Debt Service Fund is used to account for:
- Proceeds from long-term debt issuance
- Accumulation of resources for payment of long-term debt principal and interest (Correct answer)
- Capital asset acquisitions financed through debt
- Interfund loans between governmental funds
Correct answer: Accumulation of resources for payment of long-term debt principal and interest
Debt Service Funds accumulate financial resources for payment of principal and interest on general long-term debt.
Question 3: Which of the following is NOT a governmental fund type under GASB?
- Special Revenue Fund
- Capital Projects Fund
- Internal Service Fund (Correct answer)
- Permanent Fund
Correct answer: Internal Service Fund
Internal Service Funds are proprietary funds, not governmental funds; the five governmental fund types are General, Special Revenue, Capital Projects, Debt Service, and Permanent.
Question 4: Encumbrances in governmental accounting represent:
- Expenditures already paid
- Commitments related to unperformed contracts for goods or services (Correct answer)
- Long-term liabilities for capital leases
- Accrued payroll not yet paid
Correct answer: Commitments related to unperformed contracts for goods or services
Encumbrances represent commitments (purchase orders, contracts) for which goods or services have not yet been received, reserving the appropriation balance.
Question 5: In fund accounting, which of the following best describes a Special Revenue Fund?
- Accounts for revenues legally restricted to expenditure for specific purposes (Correct answer)
- Accounts for the government's primary operating activities
- Accounts for resources set aside for capital asset acquisition
- Accounts for payments of long-term debt obligations
Correct answer: Accounts for revenues legally restricted to expenditure for specific purposes
Special Revenue Funds account for revenues that are legally restricted or committed to be used for specific purposes other than debt service or capital projects.
Question 6: Interfund transfers differ from interfund loans because transfers:
- Must be repaid with interest
- Require legislative appropriation
- Are not required to be repaid (Correct answer)
- Are only allowed between proprietary funds
Correct answer: Are not required to be repaid
Interfund transfers represent flows of resources between funds that are not expected to be repaid, whereas interfund loans are expected to be repaid.
Question 7: Under GASB, Permanent Funds are used to account for resources that are legally restricted so that:
- Only earnings, not principal, may be used to support government programs (Correct answer)
- Both principal and earnings support capital projects
- Principal may be spent only for debt service
- Resources are held in trust for external parties
Correct answer: Only earnings, not principal, may be used to support government programs
Permanent Funds account for resources where only the earnings (not the corpus/principal) may be spent, and must be used for the benefit of the government or its citizenry.
CGFM Governmental Accounting and Fund Accounting 2
Which GASB statement established the current framework for fund accounting in state and local governments?