What are the two most important financial documents?

Budget and annual financial report

(the accounting system links the two together by providing the framework for
processing financial transactions)

What does GAAP outline?

The recording, reconciling, and reporting of transactions in the
accounting system

What is GASB?

The Governmental Accounting Standards Board, a seven-person body of
accounting professionals that is the primary source of such standards, interpretations, and technical bulletins for state and local governments

When was GASB created?

1984

Adopted in June 1999, which statement introduced sweeping changes to the structure of the basic financial statements for state and local governments and the way in which accounting information is recorded and reconciled?

Statement No. 34, “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments,”

What are the benefits of standardizing the accounting system?

1. Comparisons can be made across governments and conclusions drawn on the relative financial health of each.
2. Users can interpret financial reports more easily.
3. Assuring users that a common set of rules is being applied to reporting the
   results of financial operation

How is GAAP for government different from private accounting?

Whereas a business combines the results of the operations of
all its subsidiaries into one consolidated report, governments report their results by groups of funds (the accounting entity)

What is a fiscal and accounting entity with a self-balancing set of
accounts?

Fund

Define Principle #1 of governmental accounting

Requires that accounts be maintained on a GAAP basis and demonstrate
compliance with finance-related legal requirements

Define Principle #2 of governmental accounting

Specifies that funds must be the basis for maintaining accounting records

Define Principle #3 of governmental accounting

Identifies and defines the eleven basic types of funds used in governmental
accounting

Define Principle #4 of governmental accounting

Governments should maintain a minimum number of funds and only those
required by law

Define Principle #5 of governmental accounting

A distinction should be maintained in the accounting records among the capital
assets of proprietary funds, fiduciary funds, and those of governmental funds.

Define Principle #6 of governmental accounting

The historical cost of capital assets (land, buildings, equipment, infrastructure)
and long-term debt should be maintained in the accounting records

Define Principle #7 of governmental accounting

Depreciation of capital assets should be recorded in the accounting records

Define Principle #8 of governmental accounting

The accounting records should maintain a clear distinction between longterm liabilities attributable to a specific fund and those to the general government.

Define Principle #9 of governmental accounting

The accrual basis of accounting should be used for the government-wide
financial statements. The fund-specific financial statements should use the modified accrual basis for governmental funds and the accrual basis for proprietary and fiduciary funds

Define Principle #10 of governmental accounting

An annual budget should be adopted, budgetary control is provided by the
accounting system, and an annual comparison of budget with actual results of operations should be made

Define Principle #11 of governmental accounting

Interfund transfers must be recognized and reported depending on whether the
transfer involves reciprocity or not

Define Principle #12 of governmental accounting

A common terminology and classification system should be used throughout all
financial records

Define Principle #13 of governmental accounting

Interim financial reports should be prepared and the format of the
comprehensive annual financial report (CAFR) should follow a specified format

What are the two ways governments recognize accounting transactions?

Accrual and modified accrual method (for certain funds)

How can a fund be defined?

As a fiscal entity with a set of self-balancing accounts

How can a fund be viewed?

As a legal entity that receives inflows and incurs outflows of financial resources

How does a fund acquire a balance?

If the inflows exceed the outflows, the fund accumulates a balance; conversely a net outflow results in a reduction in fund balance

How is a fund created?

By law or an executive fiat

What is the primary operating account?

General Fund

What are the five Governmental Funds?

1. General Fund
2. Special Revenue
3. Debt Service Funds
4. Capital Projects Funds
5. Permanent Funds

What are the two Proprietary (Business-type) Funds?

1. Enterprise Funds
2. Internal Service Funds

What are the four Fiduciary funds?

1. Investment Trust Funds
2. Private-purpose Trust Funds
3. Pension Trust Funds
4. Agency Funds

Which fund accounts for and reports financial resources that are restricted, committed, or assigned to expenditure for principal and interest of long-term, general debt?

Debt Service Fund

Which fund accounts for the proceeds of specific revenue sources that have been committed or restricted to expenditure for specified purposes other than debt service or capital projects?

Special Revenue Fund

Which fund accounts for and reports financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets?

Capital Projects Fund

What happens to a Capital Projects Fund once the project is complete?

The fund may be closed out and the remaining balance transferred to other capital project funds or to a committed or restricted account in the General Fund

What is the function of a capital budget?

Provides authorization for the resources and expenditures of these funds
and provides detail on each project's sources and uses of funding

What fund is used to account for and report resources that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government‘s programs—that is, for the benefit of the
government or its citizenry?

Permanent Fund

Which fund accounts for services that derive a portion of their income through user charges?

Enterprise Fund

What are inflows to an enterprise fund?

Fees charged to users of the service

What are outflows to an enterprise fund?

The labor and operating costs incurred in providing the service

What are the requirements of GASB 34?

That an activity be accounted for in an enterprise fund if it is financed with debt that is backed by fees generated by that activity.

Which fund includes some service charge revenue but it is not used as collateral for Revenue Bonds used to finance the fee-for-service activity?

Special Revenue Fund

Example: The gross receipts tax is levied on a private cable company; however,
the revenue is committed or restricted to a particular purpose. What type of fund is it?

Special Revenue Fund

Which fund accounts for services provided by one department of government to another, i.e. services internal to the organization or in some cases by one unit of government to another?

Internal Service Fund

What is the advantage of an internal service fund?

It provides a mechanism for encouraging greater efficiencies in the use of such services by rationing the internal users and providing accountability.

Which funds account for resources that governments hold in trust for individuals, such as a pension fund, or other governments?

Fiduciary Funds

Which funds account for resources that are commingled by several governments and are held in trust by a sponsor, such as a county?

Investment Trust Funds

Which funds have the resources held in trust by a government on behalf of individuals, private organizations, or even other governments?

Private-purpose Trust Funds

Which funds are resources held in trust by a local government for payment of employee retirement benefits?

Pension Funds

Which funds holds taxes paid by other cities and report the debt service transactions of a special assessment issue for which the government is not
obligated in any manner rather than a debt service fund to reflect the fact that the government’s duties are limited to acting as an agent for the assessed property owners and the bondholders?

Agency Funds

What do reciprocal funds involve?

Interfund loans and reimbursable services provided by one fund to another

Define reciprocity

A fund reimburses another for the benefits it receives from the latter much as if it had purchased that service or incurred a loan from a source outside the government?

What activity includes interfund transfers and interfund reimbursements where reciprocity is not required?

Nonreciprocal transactions

What is a separate financial reporting unit for budget, management, and/or accounting purposes?

Account

What is the accounting equation for government funds?

Assets + Deferred Outflows of Resources = Liabilities + Deferred Inflows of
Resources + Fund Balance

What is the accounting equation for proprietary funds and government-wide financial statements?

Assets + Deferred Outflows of Resources – Liabilities – Deferred Inflows of
Resources = Net Position

Which accounts represent things of value?

Asset accounts

Which assets can be converted to cash within a year or less?

Current assets

Which assets represent the least liquid assets such as land,
buildings, equipment, and other improvements and are recorded based on their historical cost?

Capital assets

Where are capital assets reported?

The government-wide statement of net position and the proprietary funds statement of fund net position

What is defined as a consumption of net position that applies to a future
period(s) and so will not be recognized as an outflow of resources (expenses /expenditures) until then?

Deferred outflows of resources

Which accounts represent legal obligations that require the eventual transfer of assets?

Liability accounts

What is defined as the acquisition of net position/fund balance that applies
to a future period(s) and so will not be recognized as an inflow or resources (revenue) until that time?

Deferred inflows of resources

What defines fund balance for all accounts and net position for proprietary and fiduciary funds?

The difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources

What are the five types of accounts that can be included in a fund balance?

1. Nonspendable
2. Restricted
3. Committed
4. Assigned
5. Unassigned

Which balance classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact?

Nonspendable

Which balance classification includes amounts that can be spent only for the specific purposes stipulated by external resource providers either constitutionally or through enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors or the laws or regulations of other governments?

Restricted

Which balance classification includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government‘s highest level of decision-making authority should be reported as committed fund balance?

Committed

Which balance classification includes amounts that are constrained by the government‘s intent to be used for specific purposes, but are neither restricted nor committed, should be reported as assigned fund balance,
except for stabilization arrangements?

Assigned

Which classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund?

Unassigned

Which fund can report a positive unassigned fund balance?

General Fund

What are the three components of Net Position?

Net investment in capital assets,
• Restricted (distinguishing between major categories of restrictions)
• Unrestricted

Define net position

the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources in proprietary and fiduciary funds

Which component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of bonds, mortgages, notes, or other borrowings attributable to the acquisition, construction, or improvement of those assets?

Net investment in capital assets

Which component of net position is defined as restricted fund balance, however, the balances may be different due to the different measurement focuses and bases of accounting used in government-wide statement of net position and the government funds balance sheet?

Restricted net position

Which component of net position is the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or restricted net position?

Unrestricted net position

What are the five step sequence of accounting actions?

Step 1. Business transaction occurs

Step 2. Transaction logged in book of original entry

Step 3. Posting to General Ledger and Subsidiary Ledgers, such as Revenue Subsidiary Ledger Expenditure Subsidiary Ledger

Step 4. Closing entries entered in journal and posted to General Ledger

Step 5. Financial Statements prepared

Which financial report compares budget vs actual and provides guidance during city council meeting?

Operating statement

Explain flow of financial resources measurement focus for governmental funds

The focus is for current assets and current liabilities. The purpose is not to accumulate wealth but to spend funds for services

Explain flow of economic resources

The focus for proprietary and fiduciary funds accounting for capital assets. Purpose is to accumulate net wealth.

When are governmental funds recognized?

When they are measurable and available for use (generally 60 days after fiscal year-end)

This is also known as modified accrual

What are revenues that are measurable but unavailable for use
in the current period?

Deferred inflow

What is the method for recognizing proprietary and fiduciary funds?

Accrual method: Revenues are recognized when they are earned, expenses are recognized whenever goods are used using depreciation and showing the difference as net income

What two reports serve as the basis of budget implementation? Which is the more important of the two?

interim and annual financial reports

Both tally the revenue and expenditures for the subsidiary ledgers of each fund. Interim are for internal use, therefore more important to city council decision making

How is the interim report arranged?

Name of Department - Appropriation - Current Period Expenditures - Year-to-Date Expenditures - Encumbrances = Unencumbered Balances

What does CAFR stand for?

Comprehensive annual financial report

Which report is created primarily for external stakeholders and provides a report on all funds managed by a government for the preceding fiscal year?

CAFR

What are the three components of a CAFR?

Introductory Section
• Financial Section
• Statistical Section

What does the Introductory Section of the CAFR contain?

1. Table of Contents
2. Letter of Transmittal
3. Organizational Chart
4. List of Principal Officials
5. Reproduction of Certificate of Achievement for Excellence for Financial Reporting (if applicable)

What does the Financial Section of the CAFR contain?

1. Management discussion and analysis (MD&A)
2. Basic financial statements including:
{a}Government-wide financial statements
{b} Fund-specific financial statements (one set for Governmental Funds, another for Proprietary Funds, and another for Fiduciary)
{c}Notes to the financial statements
3. Required supplementary information (RSI)

What is the purpose of the MD&A?

Gives management the opportunity to (1) describe the basic financial statements, (2) discuss trends in the overall financial condition of the jurisdiction as well as in key funds and fund types, (3) explain significant differences between the original and final approved budgets, (4) describe significant changes in capital assets and long term debt, and (5) any known events that may have a significant effect on the City’s financial condition

What are the two consolidated statements required by GASB?

Statement of Net Position and a Statement of Activities

What does the Statement of Activities report?

The expense of providing services by function

Which funds require individual statements?

The General Fund and any other "major funds" that meet the quantitative requirements

What statements are required for Proprietary Funds?

Statement of Net Position (balance sheet), Statement of Revenues, Expenses and Changes in Net Position, and a Statement of Cash Flows, all prepared on an accrual basis

What statements are required for Fiduciary Funds?

Statement of Net Position and Statement of Changes in Net Position are presented by fund type rather than individual funds

What three things should the budget comparison report?

(1) the original approved budget, (2) the final amended budget, which represents the ultimate appropriation authority for the fiscal year, and (3) the actual amounts (on a budgetary basis) for the same period. A column showing the variance between actual and final budget

What five elements might be included in an RSI (Required Supplementary Information)?

(1) If budgetary comparisons were not provided in the fund-specific section, then they are to be included in the RSI as schedules
(2) Local governments must provide an assessment of the
condition of such infrastructure and the cost required as well as the actual amount expended to maintain this infrastructure at a predetermined level of quality.
(3) Trend data on postemployment benefits (postemployment benefit plans and employers that participate in sole-employer or agent multiple-employer defined benefit plans).
(4) Trend data on revenue and claims development (public-entity risk pools)
(5) Pension schedules

What are the five objectives of the The Statistical Section of the CAFR?

Provide information on financial trends
• Provide information on revenue capacity
• Provide information on debt capacity
• Provide demographic and economic information
• Provide operating information

Which employee benefits are not part of a pension plan and paid out of an annual appropriation from a state or local government’s operating budget along with benefits to those currently employed?

Other post-employment benefits (OPEB

Which statement provided guidance on when certain organizations, although not financially accountable to the primary government, should be reported as a component of that government’s financial reports based on the nature of their
relationship?

Statement 39

What is the criteria to determine if a component should be reported as a separate unit?

(1) The resources received by the separate organization are entirely or almost entirely for the direct benefit of the parent government or its components or constituents;
(2) The parent government or its component units can access most of the resources held by the separate organization;
(3) The resources held by the organization, that the parent government is entitled to or has the authority to access, are significant to the parent government.10

Which statement established standards for recognizing liabilities, deferred benefit payments, and pension payments?

Statement 68

Which statement defined "fair value" and "investment"?

Statement 72