ANSWERS TO REVIEW QUESTIONS

1. No, the Financial Accounting Standards Board does not establish accounting standards for
government entities. The Governmental Accounting Standards Board performs that function.
2. Characteristics of governmental entities that have a significant influence on the accounting for
such entities are the following:
(1) Governmental entities exist to serve the citizens subject to their jurisdiction.
(2) With few exceptions, governmental entities render services to the citizenry without the
object of profiting from these services.
(3) The citizens subject to a governmental entity's jurisdiction provide resources to the
governmental entity principally through taxation.
(4) Operations of governmental entities are for the most part initiated by various legislative
enactments.
(5) Governmental entities' primary responsibility in financial reporting is to demonstrate
adequate stewardship for resources provided by their citizenry.
3. The Government Accounting Standards Board has defined a fund for governmental entities
accounting purposes as 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."
4. a. Support for the use of the modified accrual basis of accounting for general funds of
governmental entities lies in the importance of the annual budget as a control device for those
funds. The modified accrual basis of accounting requires the recognition of revenues when
they are measurable and available to achieve a better matching with the estimated revenues
in the annual budget.
b. The encumbrance technique is supported by the need for control over expenditures to assure
that they do not exceed appropriated amounts. If purchase orders and other commitments
against appropriations were not recorded in the expenditures subsidiary ledger, an
unexpended balance of a budgetary appropriation might accidentally be overexpanded or
overcommitted.
c. Recording the budget in the accounting records of the various funds permits the legislative
authority to exercise control over the expenditures of the funds. Actual revenues and
expenditures are compared with budgeted revenues and appropriations during a fiscal year
and in the comprehensive annual financial report for the fiscal year.
5. a. A program budget stresses measurement of the total cost of a governmental program,
regardless of how many governmental entity departments are involved in the program. In
contrast, a performance budget relates input of resources to a specific governmental entity
department against the output of services of that department.
b. A budgetary deficit is an excess of appropriations and estimated other financing uses over
estimated revenues and estimated other financing sources in an annual deficit budget.
6. The Estimated Revenues ledger account of a governmental entity general fund sometimes is
alluded to as a pseudo asset because it reflects revenues expected to be received by the general
fund during the fiscal year. However, the Estimated Revenues account does not fit the accounting
definition of an asset. The Appropriations ledger account may be considered a pseudo liability
because it reflects the legislative body's commitments to expend resources for the general fund.
However, the Appropriations account does not fit the accounting definition of a liability.
7. The Budgetary Fund Balance ledger account of a general fund is used to balance the debit and
credit entries to accounts (Estimated Revenues, Appropriations, Estimated Other Financing
Sources, Estimated Other Financing Uses) in the journal entry to record the general fund's annual
budget. At the end of the fiscal year, the Budgetary Fund Balance account is closed by a journal
entry that reverses the original budget entry.
8. A general fund is residual because it is used to account for all transactions and events of a
governmental entity not accounted for in one of the other ten types of funds. Although the general
fund is residual, it generally accounts for the largest aggregate dollar amounts of the
governmental entity's revenues and expenditures.
9. Revenues of a governmental entity's general fund that generally are accrued include property
taxes, fines, charges for services, investment income, and operating lease rents.
10. The Expenditures ledger account of a governmental entity general fund records amounts paid or
to be paid in cash by the general fund under the appropriations authorized by the legislative
branch of the governmental entity. The Expenditures account of a general fund does not show the
cost expirations chargeable to revenues, as do the expense accounts of a business enterprise.
11. The Other Financing Sources ledger account is used to record nonrevenue items such as transfers
in to the general fund from other funds. The Other Financing Uses account reflects amounts of
transfers out from the general fund to other funds; these transfers are not expenditures of the
general fund.
12. The Fund Balance Reserved for Inventory of Supplies ledger account of a general fund represents
a restriction of the Unreserved and Undesignated Fund Balance account to guard against the
financing of a deficit budget with general fund resources not available for expenditure. The
Unreserved and Undesignated Fund Balance ledger account of a general fund shows the net
amount of a general fund's resources available for appropriation by the legislative branch to
finance a budgetary deficit.
13. A reservation of the fund balance of a governmental entity general fund is a mandatory
restriction of the fund balance for such items as inventory of supplies and outstanding
encumbrances. A designation of the fund balance is a voluntary earmarking of the fund balance
for planned future appropriations such as acquisition of equipment.
14. a. The financial statements for a governmental entity general fund are a statement of revenues,
expenditures, and changes in fund balance, and a balance sheet.
b. The principal differences between the financial statements of a governmental entity general
fund and the financial statements of a business enterprise are as follows:
(l) Some revenues, such as fees for licenses and permits, are recognized on the cash basis in
the general fund.
(2) The general fund does not record the governmental entity's plant assets or long-term debt.
(3) General fund inventories are offset by a fund balance reserve.
(4) The encumbrance technique often is used to segregate a portion of the general fund's
Unreserved and Undesignated Fund Balance ledger account for the amounts of unfilled
purchase orders.
(5) Neither of the general fund's financial statements is designed to present the general fund's
operating results in terms of net income or net loss.