GAC GAC Public Sector Fund Accounting 2 — Questions and Answers
Question 1: Which of the following fund balance classifications under GASB Statement No. 54 represents amounts that cannot be spent because they are not in spendable form?
- Restricted fund balance
- Committed fund balance
- Nonspendable fund balance (Correct answer)
- Unassigned fund balance
Correct answer: Nonspendable fund balance
Nonspendable fund balance includes amounts that cannot be spent because they are not in spendable form, such as inventories, prepaid items, or long-term receivables.
Question 2: A Special Revenue Fund is best described as a fund used to account for:
- The construction of major capital facilities
- Proceeds of specific revenue sources that are restricted or committed for specified purposes (Correct answer)
- Activities financed primarily by user charges
- Accumulation of resources for debt principal and interest payments
Correct answer: Proceeds of specific revenue sources that are restricted or committed for specified purposes
Special Revenue Funds account for revenue sources that are restricted, committed, or assigned for specific purposes other than debt service or capital projects.
Question 3: Under modified accrual accounting, revenues are recognized when they are:
- Earned regardless of when received
- Measurable and available within 60 days of year-end (Correct answer)
- Received in cash during the fiscal year
- Approved in the annual budget
Correct answer: Measurable and available within 60 days of year-end
Under modified accrual, revenues are recognized when they are measurable and available, meaning collectible within the current period or soon enough to pay current-period liabilities.
Question 4: Capital Projects Funds are used to account for:
- Ongoing operating activities of the government
- Acquisition or construction of major capital facilities (Correct answer)
- Long-term debt principal payments only
- Enterprise activities that charge fees
Correct answer: Acquisition or construction of major capital facilities
Capital Projects Funds account for financial resources segregated for the acquisition or construction of major capital facilities other than those financed by proprietary or trust funds.
Question 5: Which of the following best describes a Permanent Fund under GASB?
- A fund used to report assets legally restricted so only earnings may be used for public purposes (Correct answer)
- A fund used to report infrastructure assets
- A fund used to account for permanent employee benefit obligations
- A fund used to account for all long-term assets of the government
Correct answer: A fund used to report assets legally restricted so only earnings may be used for public purposes
Permanent Funds report resources that are legally restricted so that only earnings, not principal, may be used to support government programs for the benefit of the public.
Question 6: In governmental fund accounting, expenditures are generally recognized when:
- Cash is paid
- The budget appropriation is approved
- The fund liability is incurred (Correct answer)
- Goods are ordered via purchase order
Correct answer: The fund liability is incurred
Under modified accrual, governmental fund expenditures are recognized when the fund liability is incurred, meaning when goods or services are received and the obligation arises.
GAC GAC Public Sector Fund Accounting 2
Which of the following fund balance classifications under GASB Statement No. 54 represents amounts that cannot be spent because they are not in spendable form?