To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting Multiple Choice Governmental units include all of the following except a counties b school districts c industrial development districts d voluntary health and welfare organizations Which type of fund entities are used to account for the activities of nonbusiness organizations that are similar to those of business enterprises? a Expendable fund entities b Proprietary fund entities c Budgetary fund entities d Restricted fund entities When budgeted expenditures are enacted into law, they are referred to as a estimated expenditures b encumbrances c appropriations d expenditures The term used to describe the application of accounting to expendable fund entities is the a accrual method b cash method c modified cash method d modified accrual method The entry to close appropriations, expenditures, and encumbrances accounts includes a debit to a Appropriations b Expenditures c Encumbrances d both Appropriations and Encumbrances The entry to record the receipt of office equipment previously encumbered includes a debit to a Office Equipment b Encumbrances c Reserve for Encumbrances d both Office Equipment and Reserve for Encumbrances In accounting for and reporting inventory in the financial statements, the "Reserve for Inventory" account is used under a the consumption method b the purchase method c both the consumption and purchase methods d none of these http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-2 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition The two basic statements prepared for expendable fund entities are a balance sheet and a(n) a income statement b statement of revenue c statement of expenditures and encumbrances d none of these If a credit was made to the fund balance in the process of recording a budget for a governmental unit, it can be assumed that a estimated expenses exceed actual revenues b actual expenses exceed estimated expenses c estimated revenues exceed appropriations d appropriations exceed estimated revenues 10 The "reserve for encumbrances—prior year" account represents amounts recorded by a governmental unit for a anticipated expenditures in the next year b expenditures for which purchase orders were made in the prior year but disbursement will be in the current year c excess expenditures in the prior year that will be offset against the current-year budgeted amounts d unanticipated expenditures of the prior year that become evident in the current year 11 Which of the following requires the use of the encumbrance system? a Capital projects fund b Debt service fund c Internal service fund d Enterprise fund 12 The following related entries were recorded in sequence in the general fund of a municipality: Encumbrances Reserve for Encumbrances 15,000 Reserve for Encumbrances Encumbrances 15,000 Expenditures Vouchers Payable 15,350 15,000 15,000 15,350 The sequence of entries indicates that a an adverse event was foreseen and a reserve of $15,000 was created; later the reserve was cancelled and a liability for the item was acknowledged b an order was placed for goods or services estimated to cost $15,000; the actual cost was $15,350 for which a liability was acknowledged upon receipt c encumbrances were anticipated but later failed to materialize and were reversed A liability of $15,350 was incurred d the first entry was erroneous and was reversed; a liability of $15,350 was acknowledged http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-3 13 The reserve for encumbrances account is properly considered to be a a current liability if payable within a year; otherwise, long-term debt b fixed liability c floating debt d reservation of the fund's equity 14 Customers' meter deposits which cannot be spent for normal operating purposes would be classified as restricted cash in the balance sheet of which fund? a Internal Service b Trust c Agency d Enterprise 15 What journal entry should be made at the end of the fiscal year to close out encumbrances for which goods and services have not been received? a Debit reserve for encumbrance and credit encumbrances b Debit reserve for encumbrances and credit fund balance c Debit fund balance and credit encumbrances d Debit encumbrances and credit reserve for encumbrances 16 The GASB has the responsibility for establishing financial accounting standards for all of the following entities except: a state and local government entities b veterans hospitals c school districts d civic organizations 17 The expendable fund entity’s measurement focus is on: a the flow of current financial resources b the flow of economic resources c the flow of revenue, expenses, and net income d none of the above 18 Under GASB Statement No 34, a government-wide financial statement should include a: a statement of revenues & expenses b statement of activities c statement of financial position d notes to the financial statements 19 In accounting for expendable fund entities, revenue is ordinarily not recognized until: a it can be objectively measured and it is available to finance expenditures of the current period b a transaction has taken place and the earnings process is complete c it has been received in cash d none of the above 20 The Expenditures account of a governmental unit is debited when: a the budget is recorded b supplies are ordered c supplies encumbered are received d the supplies invoice is paid http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-4 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Problems 17-1 During 2011, the City of Paola was involved in the following transactions: A budget consisting of estimated revenues of $1,500,000 and appropriations for expenditures of $1,550,000 was approved by the city council Statements of property tax assessments totaling $1,100,000 were mailed to property owners Experience indicates that 2% of assessed taxes will be uncollectible Equipment costing $85,000 was purchased, and old equipment was sold for $15,000 at the end of its estimated useful life The city manager signed a contract to purchase a machine costing $25,000 The city received a statement from the state indicating that the city's portion of the state sales tax is $50,000 The machine ordered in (4) above is delivered and accepted The invoice in the amount of $26,000 was approved for payment Required: Prepare the journal entries needed to account for the preceding transactions http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-2 17-5 On December 31, 2011, the following account balances, among others, were included in the preclosing trial balance of the General Fund of the City of Ottawa Estimated Revenue Expenditures Encumbrances Expenditures—2010 Reserve for Encumbrances (1) Appropriations Revenue Reserve for Supplies Inventory (2) Supplies Inventory Unreserved Fund Balance $2,960,000 1,950,000 530,000 300,000 830,000 2,850,000 3,220,000 600,000 600,000 300,000 (1) The balance in this account was $270,000 on January 1, 2011 Purchase orders outstanding on December 2011 total $530,000 (2) Supplies on hand on December 31, 2011, amount to $380,000 Required: What was the balance in the Unreserved Fund Balance account on December 31, 2010? What was the total Fund Balance on December 31, 2010? Prepare the necessary adjusting and closing entries for the year ended December 31, 2011 Ottawa uses the purchase method to account for supplies 17-3 The trial balance for the General Fund of the City of Girard as of December 31, 2010, is presented below: CITY OF GIRARD The General Fund Adjusted Trial Balance December 31, 2010 Cash Property Tax Receivable Estimated Uncollectible Taxes Due from Trust Fund Vouchers Payable Reserve for Encumbrances Unreserved Fund Balance Debit $216,000 31,000 Credit $ 80,000 41,000 $288,000 55,000 20,000 205,000 $288,000 Transactions for the year ended December 31, 2011 are summarized as follows: The City Council adopted a budget for the year with estimated revenue of $720,000 and appropriations of $710,000 Property taxes in the amount of $495,000 were levied for the current year It is estimated that $20,000 of the taxes levied will prove to be uncollectible http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-6 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Proceeds from the sale of equipment in the amount of $32,000 were received by the General Fund The equipment was purchased four years ago with resources of the General Fund at a cost of $200,000 On the date it was purchased, it was estimated that the equipment had a useful life of six years Licenses and fees in the amount of $90,000 were collected The total amount of encumbrances against fund resources for the year was $595,000 Vouchers in the amount of $445,000 were authorized for payment This was $11,000 less than the amount originally encumbered for these purchases An invoice in the amount of $19,000 was received for goods ordered in 2010 The invoice was approved for payment Property taxes in the amount of $425,000 were collected Vouchers in the amount of $385,000 were paid 10 Forty-one thousand dollars was transferred to the General Fund from the Trust Fund 11 The City Council authorized the write-off of $15,000 in uncollected property taxes Required: Prepare entries, in general journal form, to record the transactions for the year ended December 31, 2011 Prepare the necessary closing entries for the year ending December 31, 2011 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-4 17-7 The following information regarding the fiscal year ended June 30, 2011, was drawn from the accounts and records of the Chase County general fund: Revenues and other asset inflows: Property taxes Licenses and permits State grants Collection of interfund advance to other fund Proceeds from sale of equipment Expenditures and other asset outflows: General government Public safety Judicial system Health Equipment purchases Payment to debt service fund to cover future debt service on general government bonds Total fund balance, July 1, 2010 $6,000,000 750,000 150,000 80,000 40,000 $2,250,000 1,130,000 600,000 900,000 370,000 570,000 $1,200,000 Required: Prepare a statement of revenues, expenditures, and changes in fund balance for the Chase County general fund for the year ended June 30, 2011 17-5 The unadjusted trial balance for the general fund of the City of Iola at June 30, 2011, is as follows: Debits Cash Due from agency fund Encumbrances Estimated revenues Expenditures Property taxes receivable $170,000 25,000 120,000 800,000 610,000 110,000 Credits Allowance for uncollectible taxes Appropriations Unreserved fund balance Reserve for encumbrances Revenues Vouchers payable 8,000 790,000 30,000 60,000 840,000 107,000 Supplies on hand at June 30, 2011, totaled $8,000 The $120,000 encumbrance relates to equipment ordered but not received by fiscal year-end Required: Prepare a balance sheet for the general fund of the City of Iola at June 30, 2011 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-8 17-6 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition At the beginning of 2011, the City of Wichita reported an Unreserved Fund Balance of $890,000 and a supplies inventory balance of $280,000 During the year, Wichita purchased $360,000 in supplies and used $350,000 worth The city will report a reserve for supplies inventory Required: a Prepare the journal entries needed to account for the supplies under the consumption method b Prepare the necessary journal entries under the purchases method c What would the December 31, 2011, balance in the Unreserved Fund Balance be under the consumption method, assuming that the only transactions of the fund are those involving the supplies? 17-7 The following account balances, among others, were included in the preclosing trial balance of the General Fund of the City of Baxter on December 31, 2011 Appropriations Cash Due from Other Funds Due to Other Funds Encumbrances Estimated Revenue Expenditures Expenditures – 2010 Reserve for Encumbrances Reserve for Encumbrances – 2010 Revenue Taxes Receivable Transfers from Other Funds Transfers to Other Funds Unreserved Fund Balance Vouchers Payable $2,350,000 180,000 170,000 70,000 250,000 2,480,000 2,010,000 200,000 250,000 210,000 2,400,000 400,000 250,000 350,000 280,000 270,000 Required: a Prepare the necessary closing entries on December 31, 2011 b Calculate the amount of both the unreserved fund balance and the total fund balance in the balance sheet (1) on December 31, 2010, and (2) on December 31, 2011 Short Answer Fund entities may be classified as expendable fund entities, fiduciary fund entities, and proprietary fund entities Distinguish among expendable, fiduciary, and proprietary fund entities Expendable fund entities prepare closing entries at the end of each period just as business enterprises Describe the necessary closing entries for expendable funds Short Answer Questions from the Textbook What characteristics distinguish nonbusiness organizations from profit-oriented enterprises? Define a fund as the term is applied in accounting for the activities of governmental units and other nonbusiness organizations http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-9 What is the significance of the ―unreserved fundbalance‖ of an expendable fund entity? What are the major classifications of increases and decreases in expendable fund resources? What are the revenue-recognition criteria for expendable fund entities? How these criteria differ from revenue-recognition criteria for profit-oriented enterprises? Expenditures may be classified by function, activity, object, or organizational unit Give an example of each classification for a municipality Which classification is the most appropriate for external financial reporting? Distinguish between an appropriation, an en-cumbrance, an expenditure, and a disbursement Distinguish between an expense and an expenditure Explain and justify the difference between the treatment of estimated uncollectible taxes in fund accounting and the treatment of estimated bad debts in commercial accounting 10 Explain the purposes of encumbrance accounting Might encumbrance accounting be used by commercial enterprises? 11 Is the year-end balance in the Reserve for En-cumbrances account a liability? Explain 12 What columns would you suggest for a subsidiary ledger account in order that it might be a subsidiary not only to the ―appropriations‖ control account but also the ―encumbrances‖ and the ―expenditures‖ control accounts? 13 Why is depreciation on fixed assets not recorded in the records of expendable fund entities? 14 How does the adoption of a budget for a general fund entity differ from the adoption of a budget by a commercial unit? 15 Describe the principal financial statements used to report on the activities and status of expendable fund entities 16 Why may it be difficult or impossible for a governmental unit to determine the total cost of performing a particular activity or function? Business Ethics Question from the Textbook At State College, where football has long reigned asking and fans are near fanatical in their attendance, the frenzy for football tickets has recently reached an all-time high With requests for home game tickets at an unprecedented level, prices on everything from parking passes to hotel rooms to home rentals have soared beyond belief Parking passes were going for $500 on eBay, and hotel rates have doubled—and in some cases nearly tripled—reaching as high as $650 per night at some hotels What are the moral or ethical issues in charging what people will pay for rooms and tickets to attend a State College football game? Why not let the economic forces of supply and demand determine prices in our capitalistic system? http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-10 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition ANSWER KEY Multiple Choice d b c d a c b 10 11 12 13 14 d c b a b d d 15 16 17 18 19 20 c d a b a c Problems 17-1 Estimated Revenue Unreserved Fund Balance Appropriations 1,500,000 50,000 Property Tax Receivable Estimated Uncollectible Prop Taxes Revenue 1,100,000 Expenditures Cash 1,550,000 22,000 1,078,000 85,000 85,000 Cash 15,000 Revenue 15,000 Encumbrances Reserve for Encumbrances 25,000 Due from State Revenue 50,000 Reserve for Encumbrances Encumbrances 25,000 Expenditures Vouchers Payable 26,000 25,000 50,000 25,000 http://downloadslide.blogspot.com 26,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-11 17-2 Unreserved fund balance per trial balance Add: Appropriations Less: Estimated Revenues Unreserved fund balance as of December 31, 2010 $ 300,000 2,850,000 (2,960,000) $ 190,000 Unreserved fund balance as of December 31, 2010 Reserve for encumbrances – 12/31/10 Reserve for supplies inventory Total fund balance – 12/31/10 Adjusting and Closing Entries Revenue Estimated Revenue Unreserved Fund Balance 3,220,000 2,960,000 260,000 Reserve for Supplies Inventory Supplies Inventory 220,000 Unreserved Fund Balance Reserve for Encumbrances Expenditures – 2010 30,000 270,000 Appropriations Expenditures Encumbrances Unreserved Fund Balance 17-3 $ 190,000 270,000 600,000 $1,060,000 Journal Entries Estimated Revenue Appropriations Unreserved Fund Balance Property Tax Receivable Estimated Uncollectible Taxes Revenue Cash 220,000 300,000 2,850,000 1,950,000 530,000 370,000 720,000 710,000 10,000 495,000 20,000 475,000 32,000 Revenue 32,000 Cash 90,000 Revenue 90,000 Encumbrances Reserve for Encumbrances 595,000 http://downloadslide.blogspot.com 595,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-12 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Expenditures Vouchers Payable Reserve for Encumbrances Encumbrances 445,000 Expenditures – 2010 Vouchers Payable 19,000 Cash 445,000 456,000 456,000 19,000 425,000 Property Tax Receivable Vouchers Payable Cash 425,000 385,000 385,000 10 Cash 41,000 Due from Trust Fund 11 Estimated Uncollectible Taxes Property Tax Receivable Closing Entries Revenue Unreserved Fund Balance Estimated Revenue 41,000 15,000 15,000 597,000 123,000 720,000 Reserve for Encumbrances – 2010 Expenditures – 2010 Unreserved Fund Balance 20,000 Appropriations Expenditures Encumbrances Unreserved Fund Balance 710,000 19,000 1,000 http://downloadslide.blogspot.com 445,000 139,000 126,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-13 17-4 Chase County General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the Year Ended June 30, 2011 Revenues: Property taxes Licenses and permits State grants Total revenues $6,000,000 750,000 150,000 $6,900,000 Expenditures: General government Public safety Judicial system Health Equipment purchases Total expenditures 2,250,000 1,130,000 600,000 900,000 370,000 5,250,000 Excess of revenues over expenditures Other financing sources (uses): Operating transfers out-debt service fund Special items: Proceeds from sale of equipment Net change in fund balance Fund Balance-beginning Fund Balance-ending 1,650,000 (570,000) 40,000 1,120,000 1,200,000 $2,320,000 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-14 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 17-5 City of Iola General Fund Balance Sheet June 30, 2011 Assets: Cash Property taxes receivable (net of estimated uncollectible taxes of $8,000) Due from other funds Supplies Total assets $170,000 102,000 25,000 8,000 $ 305,000 Liabilities and Fund Balance: Vouchers payable Fund balance unreserved Reserve for encumbrances Reserve for inventory Total fund balance Total liabilities and fund balance 107,000 130,000 60,000 8,000 198,000 $305,000 Computation of Unreserved Fund Balance: Pre-closing balance Add: Revenues Appropriations Deduct: Expenditures Encumbrances Estimated revenues Post-closing balance 17-6 A B Expenditures Cash $ 30,000 840,000 790,000 610,000 120,000 800,000 $130,000 360,000 360,000 Inventory Expenditures 8,000 Unreserved Fund Balance Reserve for Supplies Inventory 8,000 8,000 Expenditures Cash 8,000 360,000 360,000 Inventory Reserve for Supplies Inventory 8,000 http://downloadslide.blogspot.com 8,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-15 C 17-7 A 1/1 Balance Use of Supplies Setting up of Reserve 12/31 Unreserved Fund Balance $890,000 (350,000) (8,000) $532,000 Closing Entries Unreserved Fund Balance Revenue Estimated Revenue 80,000 2,400,000 B Reserve for Encumbrances – 2010 Expenditures – 2010 Unreserved Fund Balance Appropriations Expenditures Encumbrances Unreserved Fund Balance Transfers from Other Funds Unreserved Fund Balance Transfers to Other Funds 2,480,000 210,000 200,000 10,000 2,350,000 2,010,000 250,000 90,000 250,000 100,000 350,000 Budget entry on January 1, 2011 Estimated Revenues Appropriations Unreserved Fund Balance 2,480,000 Unreserved fund balance per 12/31/11 preclosing trial balance Less credit to unreserved fund balance on 1/1/11 from budget entry Unreserved fund balance on 12/31/10 Reserve for encumbrances 12/31/10 Total fund balance per balance sheet 12/31/10 Unreserved fund balance per 12/31/11 pre-closing trial balance Closing entries ($10,000 + $90,000 - $80,000 - $100,000) Unreserved fund balance 12/31/11 Reserve for encumbrances 12/31/11 Total fund balance per balance sheet 12/31/11 http://downloadslide.blogspot.com 2,350,000 130,000 $ 280,000 130,000 150,000 210,000 $ 360,000 $280,000 (80,000) 200,000 250,000 $450,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-16 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Short Answer Expendable fund entities consist of net financial resources that are dedicated to a specified use Separate expendable fund entities are established based on the purpose for which financial resources may/must be used Fiduciary fund entities are used to follow the activities in which the government acts as an agent for resources that belong to others such as employee pension plans Fiduciary funds include both trust and agency funds Proprietary fund entities are used to account for the activities of nonbusiness organizations that are similar to those of business enterprises, such as a municipal water utility Closing entries for expendable funds include the following: a Revenues are closed against estimated revenues with the difference recorded in unreserved fund balance b Appropriations are closed against expenditures and encumbrances Any difference is recorded in the unreserved fund balance c Expenditures made for prior years’ encumbrances are closed against the reserve for encumbrances for that specific year d Transfers to and from other funds are closed against unreseved fund balance Short Answer Questions from the Textbook Solutions The performance of services by nonbusiness organizations is based on social need rather than on the profit motive and there is no conscious or deliberate effort by such organizations to derive a profit from their operations Nonbusiness organizations are not operated for the financial benefit of a specific individual or group of individuals and those who contribute resources to nonbusiness organizations not necessarily benefit proportionately or at all from the services provided by such organizations There is no proprietary interest in nonbusiness organizations and the equity interest in the net assets of such organizations cannot be sold or exchanged A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations At any particular point in time the unreserved fund balance of an expendable fund entity represents the balance of financial resources that are available for expenditure for the specified purposes or objectives for which the fund was created Major classifications of increases in expendable fund resources are revenues, debt issue proceeds and transfers from other funds Decreases in expendable fund resources are classified as expenditures or as transfers to other funds In accounting for expendable funds entities revenue is recognized when (1) it can be objectively measured and (2) it is available to finance expenditures of the current period In contrast, in accounting for profit-oriented enterprises revenue is ordinarily not recognized until (1) it can be objectively measured and (2) the earnings process is complete or substantially complete http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-17 Municipality: Functions – Public Safety Activity – Vice Control Organization Unit – Police Department Object – Travel Functional and activity classifications are recommended for external financial reporting An appropriation is an authorization enacted by a legislative body or granted by a governing board to make expenditures for a specified purpose An encumbrance is an obligation in the form of a purchase order or other commitment that reduces appropriation authority and is formally recorded in the accounting records An expenditure is a decrease in the net financial resources of a fund entity incurred to carry out the activities or objectives of the fund A disbursement represents the payment of cash for an expenditure Such payments may precede the expenditure (an advance), coincide with the expenditure (a direct payment), or follow the expenditure (the payment of a liability) An expense is associated with accounting for profit oriented enterprises or proprietary funds and may be defined as an expired cost consumed in the production of revenue An expenditure is associated with accounting for expendable funds entities and is a decrease in the net financial resources of a fund entity incurred to carry out the activities or objectives of the fund In accounting for commercial activities, estimated uncollectible receivables are treated as an expense in the determination of net income In accounting for expendable fund entities, estimated uncollectible taxes are treated as a direct reduction of revenue in the determination of the inflow of financial resources The estimate of uncollectible taxes is treated as a direct reduction of revenue rather than as an expenditure since the failure to collect taxes is not an outflow of financial resources but rather is a reduction in the inflow of financial resources Since there is no appropriation for the amount of estimated uncollectible taxes, it is properly accounted for as a reduction of revenue rather than as an expenditure 10 Since the amount of an appropriation cannot be legally exceeded, the placing of purchase orders and the signing of contracts are critical events in controlling the expenditures of expendable fund entities The financial resources of a fund are said to be encumbered when a transaction is entered into that requires performance on the part of another party before the nonprofit entity becomes liable to perform (expend financial resources) its part of the transaction Encumbrance accounting formally records the reduction of appropriation authority resulting from purchase orders and similar commitments and thus serves to provide an accounting safeguard against the expenditure of financial resources in excess of appropriations There would be no reason to prevent a commercial enterprise from using encumbrance accounting so long as the balance in reserve for encumbrances was offset by the balance in the encumbrances account for reporting purposes However, the compelling need for encumbrance http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17-18 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition accounting arising from the penalties provided by law for government administrators who expend funds in excess of those appropriated is not a factor in the operation and administration of commercial enterprises 11 The balance in the Reserve for Encumbrances account is not a liability Rather it represents the estimated amount of net financial resources of the fund entity that will be needed in the subsequent year to liquidate obligations entered into under the authority of the current year’s appropriation As such it represents a restriction on the availability of fund resources for future appropriation rather than a liability and is properly reported in the financial statements as a portion (reserved) of the total fund balance 12 There should be columns for the following balances: Appropriations, Encumbrances, Expenditures, Total Encumbrances and Expenditures, and Unencumbered Balance 13 Assets acquired with the resources of an expendable fund entity not represent expendable financial resources but rather reflect the purposes for which the financial resources have been used Thus, they are recorded and reported as expenditures of, rather than as assets of, the expendable fund entity Depreciation is not accounted for in the records of an expendable fund entity for the same reasons that fixed assets are excluded from the records of such entities Expenditures, not expenses, are measured in fund accounting Acquisitions of fixed assets require the use of financial resources and are accounted for as expenditures Depreciation of such assets is not a use of the financial resources of an expendable fund entity and thus is not properly recorded in the accounts of such entities Inclusion of depreciation expense in the operating statement of an expendable fund entity would confuse two fundamentally different measurements - expenditures and expenses 14 The adoption of a budget for a general fund is a legislative process that is highly formalized and which results in the formal recording of the budgeted amounts (appropriations) within the framework of the double entry accounting system The adoption of a budget by a commercial unit is also a planning and control device, but the adoption process and the subsequent application of the budget is seldom as formalized or as rigid as it is in governmental accounting 15 There are two principal financial statements recommended for expendable fund entities: (1) a Comparative Balance Sheet and (2) a Comparative Statement of Revenue, Expenditures and Other Changes in Fund Balance These two statements may be accompanied by schedules that present detailed financial data which support and amplify the information summarized in the formal financial statements Supporting schedules may also be used to present budgetary data or to demonstrate compliance with legal provisions 16 In order to determine the total cost of performing a particular function or activity, the total expenditures for such functions or activities would have to be adjusted by reducing the amount of capital expenditures included therein and by adding depreciation expenses relating to the dissipation of services embodied in capital assets utilized to support the function or activity Since capital acquisitions are not distinguished from other expenditures in the records of expendable fund entities and since depreciation is not calculated within the framework of the records of expendable fund entities there may be no reasonable basis for determining the amount or classification of these adjustments http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 17 Introduction to Fund Accounting 17-19 Business Ethics Question from the Textbook Solution Business ethics solutions are merely suggestions of points to address The objective is to raise the students' awareness of the topics, and to invite discussion In most cases, there is clear room for disagreement or conflicting viewpoints Issues to be considered: If pricing is a function of cost, then businesses charging excessive prices can be viewed as following excessive, even obscene pricing strategies Also, there are others visiting the city who are not attending the football game and who might adversely affected (for example, individuals with medical emergencies, ill family members, etc.) On the other hand, the goal of business is to make a profit and take advantage of market opportunities As long as people are aware of the practices, many might argue that the pricing strategy is appropriate http://downloadslide.blogspot.com ... andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17- 4 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Problems 17- 1... solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17- 8 17- 6 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition... solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 17- 14 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 17- 5 City