MPA Public Budgeting and Finance 2 — Questions and Answers
Question 1: What is a 'fund' in governmental accounting?
- A savings account for capital projects
- A self-balancing set of accounts used to record revenues and expenditures for a specific purpose (Correct answer)
- The total annual appropriation for an agency
- A pooled investment vehicle for public pensions
Correct answer: A self-balancing set of accounts used to record revenues and expenditures for a specific purpose
In governmental accounting, a fund is a self-balancing set of accounts that segregates resources for particular purposes, such as the General Fund or a Special Revenue Fund.
Question 2: Which statement best describes 'encumbrance accounting'?
- Recording revenues before they are received
- Reserving funds when a purchase order is issued before the expenditure is actually made (Correct answer)
- Writing off uncollectible debts
- Depreciating capital assets over their useful life
Correct answer: Reserving funds when a purchase order is issued before the expenditure is actually made
Encumbrance accounting reserves budget authority at the time a commitment (like a purchase order) is made, preventing over-expenditure of appropriations.
Question 3: The Governmental Accounting Standards Board (GASB) primarily sets standards for:
- Federal agency financial reporting
- State and local government financial reporting (Correct answer)
- Nonprofit organization accounting
- Corporate tax reporting
Correct answer: State and local government financial reporting
GASB establishes generally accepted accounting principles (GAAP) for state and local governments in the United States.
Question 4: What does the 'debt service ratio' measure in public finance?
- The ratio of tax revenue to total GDP
- The proportion of government revenue consumed by principal and interest payments on debt (Correct answer)
- The percentage of the budget allocated to capital projects
- The ratio of short-term to long-term debt
Correct answer: The proportion of government revenue consumed by principal and interest payments on debt
The debt service ratio measures what share of a government's revenues must go toward repaying debt obligations, indicating fiscal stress when it is high.
Question 5: Which federal agency is responsible for auditing and evaluating federal programs for Congress?
- Office of Management and Budget (OMB)
- Government Accountability Office (GAO) (Correct answer)
- Congressional Budget Office (CBO)
- Office of Inspector General (OIG)
Correct answer: Government Accountability Office (GAO)
The GAO, often called the 'congressional watchdog,' audits federal programs and spending and reports findings to Congress.
Question 6: What is 'tax increment financing' (TIF) commonly used for in U.S. public administration?
- Funding federal defense contracts
- Financing economic development and redevelopment in designated districts using future tax revenue growth (Correct answer)
- Providing grants to small businesses
- Subsidizing public employee pension funds
Correct answer: Financing economic development and redevelopment in designated districts using future tax revenue growth
TIF captures the incremental increase in property tax revenues generated by development within a designated district to finance public infrastructure or redevelopment costs.
MPA Public Budgeting and Finance 2
What is a 'fund' in governmental accounting?