GAC Budgeting & Financial Management 3 — Questions and Answers
Question 1: A government's operating budget shows revenues of $8M and expenditures of $9M. The $1M shortfall is best addressed by which of the following in the short term?
- Drawing from the general fund balance or reserves (Correct answer)
- Issuing general obligation bonds
- Creating a new enterprise fund
- Transferring assets from a capital projects fund
Correct answer: Drawing from the general fund balance or reserves
Short-term operating deficits are typically bridged by using accumulated fund balance (reserves), though persistent deficits require structural budget corrections.
Question 2: Which of the following describes 'zero-based budgeting' (ZBB) in a governmental context?
- All budget requests must be justified from scratch each year, without assuming prior-year funding continues (Correct answer)
- Budgets are set at zero until revenues are certified
- Only new programs require justification; existing programs are automatically funded
- Budget authority lapses to zero at fiscal year-end
Correct answer: All budget requests must be justified from scratch each year, without assuming prior-year funding continues
ZBB requires managers to justify every expenditure from the ground up each budget cycle, regardless of prior appropriations.
Question 3: Under GASB Statement No. 54, which of the following fund balance classifications represents amounts that are legally restricted by external parties or constitutional provisions?
- Restricted fund balance (Correct answer)
- Committed fund balance
- Assigned fund balance
- Nonspendable fund balance
Correct answer: Restricted fund balance
Restricted fund balance consists of amounts constrained by externally imposed conditions (e.g., creditors, grantors, laws, or constitutional provisions).
Question 4: A city council passes an ordinance reserving $2M of fund balance for a future park. Under GASB 54, this is classified as:
- Committed fund balance (Correct answer)
- Restricted fund balance
- Assigned fund balance
- Nonspendable fund balance
Correct answer: Committed fund balance
Committed fund balance results from formal action by the government's highest decision-making authority (e.g., ordinance by the governing body) constraining resources for specific purposes.
Question 5: In governmental financial management, 'allotments' are best described as:
- Subdivisions of an appropriation released to departments on a periodic basis to control spending pace (Correct answer)
- Transfers of appropriations between line items
- Revenues received ahead of the budgeted schedule
- Reserves set aside for contingent liabilities
Correct answer: Subdivisions of an appropriation released to departments on a periodic basis to control spending pace
Allotments divide an annual appropriation into smaller time periods (monthly or quarterly) to prevent agencies from exhausting funds too early in the fiscal year.
Question 6: Which of the following scenarios would require a budget amendment rather than simply using administrative transfers?
- Total appropriations in a fund must be increased above the legally adopted budget (Correct answer)
- Moving $10,000 between two line items within the same department
- Reclassifying a prior-year expenditure for audit purposes
- Reimbursing an inter-fund loan at year-end
Correct answer: Total appropriations in a fund must be increased above the legally adopted budget
Increasing total fund appropriations beyond the legally adopted level requires formal legislative action (budget amendment), as it exceeds the existing legal authority.
Question 7: A government's debt service fund accumulates resources for paying principal and interest on long-term bonds. Under which basis of accounting are expenditures recognized in this fund?
- Modified accrual basis — when due (Correct answer)
- Full accrual basis — when incurred
- Cash basis — when paid
- Budgetary basis — when appropriated
Correct answer: Modified accrual basis — when due
Governmental funds, including debt service funds, use modified accrual accounting, recognizing debt service expenditures when principal and interest are due.
GAC Budgeting & Financial Management 3
A government's operating budget shows revenues of $8M and expenditures of $9M.
The $1M shortfall is best addressed by which of the following in the short term?