CMC Financial Administration & Budgets 3 — Questions and Answers
Question 1: A municipal clerk is asked to certify that an expenditure does not exceed available appropriations before a purchase order is signed. This process is called:
- Pre-audit (Correct answer)
- Pre-encumbrance
- Pre-appropriation review
- Budget amendment
Correct answer: Pre-audit
A pre-audit checks that sufficient appropriated funds exist before a commitment is made, ensuring expenditures stay within legal limits.
Question 2: Which GASB statement established the current framework for fund financial statements and government-wide financial statements?
- GASB 27
- GASB 33
- GASB 34 (Correct answer)
- GASB 45
Correct answer: GASB 34
GASB Statement No. 34 (1999) created the dual reporting model requiring both government-wide and fund-level financial statements.
Question 3: When a city transfers money from the general fund to a debt service fund to pay bond principal and interest, this is recorded as a:
- Revenue recognition
- Operating transfer out (Correct answer)
- Loan receivable
- Capital outlay
Correct answer: Operating transfer out
Interfund transfers are recorded as 'transfers out' in the originating fund and 'transfers in' in the receiving fund, not as revenues or expenditures.
Question 4: Which type of municipal revenue is considered 'own-source' revenue, providing the most budget flexibility?
- Federal categorical grants
- State-shared revenue formulas
- Local property taxes (Correct answer)
- Intergovernmental transfers
Correct answer: Local property taxes
Local property taxes are own-source revenues fully controlled by the municipality, unlike grants or shared revenues that carry donor restrictions.
Question 5: A city adopts a budget in June for the fiscal year beginning July 1. The budget becomes effective on July 1. What is the period between budget adoption and fiscal year start called?
- Fiscal lag
- Lame-duck period
- Budget transition period (Correct answer)
- Interim period
Correct answer: Budget transition period
The period between budget adoption and the start of the new fiscal year is commonly called the budget transition period, during which the budget is finalized for implementation.
Question 6: What distinguishes a 'capital' expenditure from an 'operating' expenditure in municipal budgeting?
- Capital expenditures are paid with grants; operating uses local taxes
- Capital expenditures acquire long-lived assets; operating covers day-to-day costs (Correct answer)
- Capital expenditures require council approval; operating does not
- Capital expenditures appear only in the CAFR
Correct answer: Capital expenditures acquire long-lived assets; operating covers day-to-day costs
Capital expenditures purchase or improve assets with multi-year useful lives (buildings, equipment), while operating expenditures fund ongoing services and supplies.
Question 7: A municipality's actuals come in $300,000 under appropriation at year-end. Under most governmental accounting rules, what happens to that unspent balance?
- It lapses back to the general fund balance (Correct answer)
- It automatically carries over to next year's budget
- It must be returned to taxpayers as a refund
- It is transferred to the debt service fund
Correct answer: It lapses back to the general fund balance
Unspent appropriations generally lapse at fiscal year-end and revert to the fund balance, unless a formal carryover or encumbrance reservation was made.
CMC Financial Administration & Budgets 3
A municipal clerk is asked to certify that an expenditure does not exceed available appropriations before a purchase order is signed.
This process is called: