CMM CMM Financial Management & Budgeting 1 — Questions and Answers
Question 1: Which budgeting approach requires each department to justify all expenditures from a base of zero each fiscal year?
- Zero-based budgeting (Correct answer)
- Line-item budgeting
- Incremental budgeting
- Performance budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires every department to justify all budget requests from scratch rather than using prior-year allocations as a baseline.
Question 2: What is the primary purpose of a municipal general obligation bond?
- To fund enterprise funds through user fees
- To borrow money backed by the full faith and credit of the municipality (Correct answer)
- To finance operations without voter approval
- To create a revolving loan fund for businesses
Correct answer: To borrow money backed by the full faith and credit of the municipality
General obligation bonds are backed by the taxing authority and full faith and credit of the issuing municipality, making them a primary long-term borrowing tool.
Question 3: Under GAAP for governmental entities, which fund type is used to account for activities supported primarily by taxes and intergovernmental revenues?
- Enterprise fund
- Capital projects fund
- General fund (Correct answer)
- Debt service fund
Correct answer: General fund
The general fund accounts for most core governmental services funded by taxes, licenses, fines, and intergovernmental revenues.
Question 4: What does a fund balance reserve for 'rainy day' purposes typically represent in municipal finance?
- Money set aside for flood insurance premiums
- Unrestricted reserves to stabilize budgets during revenue shortfalls (Correct answer)
- Designated funds for capital equipment replacement
- Restricted grants from FEMA for disaster recovery
Correct answer: Unrestricted reserves to stabilize budgets during revenue shortfalls
A rainy day fund holds unrestricted reserves that local governments draw on to maintain services when revenues unexpectedly decline.
Question 5: Which financial statement provides a snapshot of a government's assets, liabilities, and net position at a specific point in time?
- Statement of revenues, expenditures, and changes in fund balances
- Statement of cash flows
- Statement of net position (Correct answer)
- Budget-to-actual comparison schedule
Correct answer: Statement of net position
The statement of net position (balance sheet equivalent) presents assets, liabilities, and net position as of the reporting date.
Question 6: What is the purpose of an appropriation ordinance in municipal budgeting?
- It sets the property tax rate for the fiscal year
- It legally authorizes the spending of funds up to specified amounts (Correct answer)
- It approves the issuance of revenue bonds
- It establishes salary schedules for city employees
Correct answer: It legally authorizes the spending of funds up to specified amounts
An appropriation ordinance is the legislative act that legally authorizes municipal departments to expend funds up to the amounts specified in the adopted budget.
CMM CMM Financial Management & Budgeting 1
Which budgeting approach requires each department to justify all expenditures from a base of zero each fiscal year?