GAC Budgeting & Financial Management 2 — Questions and Answers
Question 1: Under GASB standards, which budgetary comparison is required to be presented for the general fund and each major special revenue fund?
- Original and final appropriated budgets vs. actual amounts (Correct answer)
- Only final appropriated budget vs. actual amounts
- Only original budget vs. actual amounts
- Multi-year budget trend analysis
Correct answer: Original and final appropriated budgets vs. actual amounts
GASB requires governments to present original budget, final appropriated budget, and actual amounts for the general fund and major special revenue funds with legally adopted budgets.
Question 2: A government's budget shows a $500,000 positive budget variance in salaries. This most likely indicates:
- Actual salary expenditures were less than budgeted (Correct answer)
- Actual salary expenditures exceeded the appropriation
- The salary budget was not adopted properly
- Salary encumbrances were not recorded
Correct answer: Actual salary expenditures were less than budgeted
A positive (favorable) budget variance in expenditures means actual spending came in below the budgeted appropriation amount.
Question 3: Which of the following best describes the purpose of a 'budget stabilization fund' (rainy day fund) in governmental finance?
- To accumulate reserves for use during revenue shortfalls or economic downturns (Correct answer)
- To fund capital infrastructure projects exclusively
- To hold unspent appropriations carried over from prior years
- To manage debt service payments on outstanding bonds
Correct answer: To accumulate reserves for use during revenue shortfalls or economic downturns
Budget stabilization funds are designed to provide fiscal cushion during revenue shortfalls, helping governments avoid sudden tax increases or service cuts.
Question 4: In governmental budgeting, what is 'encumbrance accounting' primarily used for?
- To reserve portions of an appropriation for outstanding purchase orders and contracts (Correct answer)
- To record revenue that has been earned but not yet collected
- To allocate overhead costs across departments
- To track inter-fund transfers
Correct answer: To reserve portions of an appropriation for outstanding purchase orders and contracts
Encumbrance accounting reserves appropriation authority when purchase orders or contracts are issued, preventing overspending before invoices arrive.
Question 5: Which fund type is most commonly used to account for the general operations and services of a governmental unit?
- General Fund (Correct answer)
- Special Revenue Fund
- Enterprise Fund
- Internal Service Fund
Correct answer: General Fund
The General Fund accounts for most basic governmental services and operations that are not required to be reported in another fund.
Question 6: A government adopts a budget with total appropriations of $10 million. During the year, the governing board approves a supplemental appropriation of $500,000. What is the 'final appropriated budget'?
- $10,500,000 (Correct answer)
- $10,000,000
- $500,000
- $9,500,000
Correct answer: $10,500,000
The final appropriated budget equals the original budget plus any supplemental appropriations or transfers approved during the fiscal year.
Question 7: Under GAAFR guidance, which of the following is a characteristic of 'performance budgeting'?
- It links funding to measurable program outcomes and service delivery results (Correct answer)
- It allocates resources based solely on prior-year spending levels
- It focuses exclusively on object-of-expenditure classifications
- It requires zero-based justification for every line item annually
Correct answer: It links funding to measurable program outcomes and service delivery results
Performance budgeting ties appropriations to measurable outputs and outcomes, enabling legislators and citizens to evaluate the value delivered per dollar spent.
GAC Budgeting & Financial Management 2
Under GASB standards, which budgetary comparison is required to be presented for the general fund and each major special revenue fund?