CGFO Budgeting Practices 2 — Questions and Answers
Question 1: Which budgeting approach requires every department to justify all expenditures from a zero base each budget cycle?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Program budgeting
- Performance budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires departments to justify all expenditures from scratch rather than using the prior year's budget as a baseline.
Question 2: A government's budget is considered 'structurally balanced' when:
- Total revenues equal total expenditures in the current year
- Recurring revenues are sufficient to cover recurring expenditures (Correct answer)
- The fund balance has increased from the prior year
- Capital outlays are fully funded by debt issuance
Correct answer: Recurring revenues are sufficient to cover recurring expenditures
Structural balance means ongoing recurring revenues cover recurring expenditures, excluding one-time items that can mask a long-term imbalance.
Question 3: Under GASB standards, what is the primary purpose of the budget-to-actual comparison schedule in governmental funds?
- To show the government's net position
- To demonstrate compliance with legally adopted budgets (Correct answer)
- To calculate encumbrances outstanding
- To report capital asset acquisitions
Correct answer: To demonstrate compliance with legally adopted budgets
The budget-to-actual comparison schedule demonstrates whether the government complied with its legally adopted appropriations budget.
Question 4: Which technique is BEST used to smooth the impact of large, irregular capital expenditures on annual operating budgets?
- Debt financing for all capital items
- Capital reserve fund contributions (Correct answer)
- Incremental appropriations increases
- Emergency supplemental appropriations
Correct answer: Capital reserve fund contributions
Capital reserve funds allow governments to accumulate resources over time so large capital expenditures don't cause dramatic single-year budget spikes.
Question 5: A 'lapse' in government budgeting refers to:
- An amendment that reduces a department's appropriation
- The expiration of unspent appropriations at year-end (Correct answer)
- A transfer between budget line items
- The reallocation of funds to a contingency reserve
Correct answer: The expiration of unspent appropriations at year-end
A lapse occurs when unspent appropriation authority expires at the close of a fiscal year and is returned to the fund balance.
Question 6: In government finance, 'encumbrances' represent:
- Expenditures already paid in the current period
- Commitments of funds for goods or services not yet received (Correct answer)
- Revenues earned but not yet collected
- Liabilities recorded under accrual accounting
Correct answer: Commitments of funds for goods or services not yet received
Encumbrances are purchase orders or contracts that obligate appropriations before actual goods or services are received and paid.
Question 7: Which budgetary control mechanism prevents a department from spending beyond its appropriated amount during the fiscal year?
- Allotment system (Correct answer)
- Comprehensive Annual Financial Report
- Fund accounting segregation
- Debt service schedule
Correct answer: Allotment system
An allotment system divides annual appropriations into periodic spending limits (monthly or quarterly) to prevent departments from exhausting funds too early.
CGFO Budgeting Practices 2
Which budgeting approach requires every department to justify all expenditures from a zero base each budget cycle?