Chapter 4: The Governmental Fund Accounting Cycle
An Introduction to General and Special Revenue Funds
Multiple Choice
1. Accounting for a Special Revenue Fund is most like the accounting for which of the
following?
a. the General Fund
b. an Internal Service Fund
c. a Pension Trust Fund
d. an Enterprise Fund
2. When should property tax revenues be recognized in the accounting records?
a. when the budget is prepared
b. when the appropriations bill is signed into law
c. when property taxes are levied and available
d. when property taxes are actually received in cash
3. What is budgetary fund balance?
a. budgetary fund balance is assigned
b. budgetary fund balance is permanent in nature
c. budgetary fund balance is the anticipated change in fund balance as a result
of adopting the budget
d. budgetary fund balance can be appropriated
4. What basis of accounting is used to recognize revenues in the General fund?
a. cash basis
b. modified accrual basis
c. accrual basis
d. budgetary basis
5. Liabilities in the General Fund and Special Revenue Fund represent:
a. claims against the fund’s cash resources
b. claims against the fund’s current financial resources
c. claims against the fund’s economic resources
d. claims that must be paid within one year
6. A local government always will have
One or more
a General Fund Special Revenue Funds
a. yes no
b. no yes
c. no no
d. yes yes
7. What is the general rule for recognizing revenues in governmental funds?
a. revenues should be recognized when the budget is adopted
b. revenues should be recognized when available and measurable
c. revenues should be recognized when collected in cash
d. revenues may be recognized either when collected in cash or when the
budget is adopted, at the option of the government
8. Which line item does not properly belong in the balance sheet of a governmental
fund?
a. short-term investments
b. fixed assets
c. cash
d. accounts (or vouchers) payable
9. Which of the following journal entries is a budgetary entry?
a. debit estimated revenues and credit appropriations
b. debit expenditures and credit cash
c. debit property taxes receivable and credit property tax revenues
d. debit cash and credit property taxes receivable
10. Which of the following could be reported in the balance sheet for a General Fund?
a. Tax anticipation notes
b. Revenue anticipation notes
c. Serial bonds
d. all of the above
e. only a and b
11. When a city borrows cash short-term in anticipation of the receipt of property tax
revenues, which account would it credit?
a. property taxes receivable
b. property tax revenues
c. estimated other financing sources
d. tax anticipation notes payable
12. The Village of Titus borrows money using a tax anticipation note. The proceeds
from the borrowing are deposited in the General Fund. When the note is repaid, a
debit will be made in the General Fund to:
a. tax anticipation notes payable
b. expenses—tax anticipation note
c. expenditures—tax anticipation note
d. cash
13. The City of Seales has a December 31st fiscal year end. Salaries earned by city’s
General Fund employees for the period December 24th through December 31st will
not be paid until January 7th of the next year. On December 31st, the City of Seales’
accounting personnel would:
a. debit salaries expense and credit salaries payable.
b. debit expenditures—salaries and credit cash.
c. make no journal entry because cash has not yet been paid.
d. none of the above
14. At year-end, a city’s expenditures exceed its revenues. When the accounts are closed,
which of the following entries will be made to record this fact?
a. a credit to fund balance
b. a debit to fund balance
c. a credit to Appropriations
d. a debit to Budgetary fund balance
15. Which of the following financial statements normally are prepared for the General
Fund?
operating balance cash flows
statement sheet statement
a. yes no yes
b. no yes yes
c. yes yes yes
d. yes yes no
16. Expenditures of a city or county’s governmental funds include
a. cash disbursements made to settle short-term liabilities
b. depreciation of general fixed assets
c. decreases in fund balance for operating purposes but not for capital asset
acquisitions
d. decreases in fund balance for operating purposes, repayment of debt
principal and interest, and capital asset acquisitions
17. A village derives about .005 percent of its General Fund revenues from traffic
violation fines. Violators of the law have 30 days to appeal the fines. Experience
shows that the village ultimately collects on about 75% of the violations. When
should the village recognize these revenues in the General Fund?
a. when the budget is prepared
b. at the beginning of the year, based on an estimate of collections
c. when the traffic violation tickets are issued
d. when the cash is collected
18. The City of Watsonville places a purchase order for street maintenance supplies of
$56,000. This would result in:
a. a debit to expenditures—street maintenance supplies
b. a debit to encumbrances—street maintenance supplies
c. a credit to assigned fund balance
d. a credit to vouchers payable
19. At the beginning of its fiscal year, the Town of Harmon estimates that its revenues
for street maintenance activities are $100,000, and it appropriates $90,000 for street
maintenance supplies. It currently has outstanding encumbrances for street
maintenance supplies of $40,000 and has incurred expenditures for street
maintenance supplies of $30,000. How much does the Town of Harmon currently
have available to spend for street maintenance supplies?
a. $20,000
b. $30,000
c. $40,000
d. $50,000
e. $60,000
20. Which line item does not properly appear in the Statement of Revenues,
Expenditures, and Changes in Fund Balance (operating statement) of a governmental
fund?
a. expenditures—debt service
b. expenditures—capital outlay
c. property taxes receivable
d. beginning fund balance
21. Which line item would not properly appear in the closing entry of a governmental
fund?
a. expenditures—public safety salaries
b. expenditures—debt service
c. fund balance
d. expenditures—depreciation
22. If the Budgetary fund balance account was debited when the budget was recorded in
the City of Mustangville’s General Fund, then
a. appropriations exceed estimated revenues
b. actual expenditures exceed appropriations
c. estimated revenues exceed appropriations
d. appropriations exceed actual revenues
23. Under the modified accrual basis of accounting
a. expenditures are recognized when paid in cash if not previously encumbered
b. property tax revenues are recognized when earned
c. property tax revenues are recognized when measurable and available
d. encumbrances are equivalent to expenditures
24. In governmental accounting, expenditures are
a. equal to expenses minus depreciation
b. incurred for operating purposes, capital acquisitions, and debt service
c. equal to encumbrances plus appropriations
d. incurred to generate revenue in order to promote the well-being of the
citizens
25. Which of the following accounts properly would not appear in the General Fund’s
closing entry at fiscal year end?
a. revenues
b. fund balance
c. taxes receivable
d. expenditures
26. If the fund balance of a Special Revenue Fund has a debit balance at the end of the
fiscal year, it means that
a. revenues are less than expenditures for the year
b. actual revenues are less than estimated revenues
c. total liabilities exceed total assets
d. expenditures consistently exceeded encumbrances
27. Within a city’s General Fund, which source of revenues is least likely to be accrued
in advance of receipt in cash?
a. building inspection fees
b. property taxes
c. interest on investments
d. sales taxes
28. A county borrows cash on a short-term basis. Which of the following account could
be credited in this transaction?
a. tax anticipation notes payable
b. revenues from borrowing
c. appropriations—borrowed money
d. assigned fund balance
29. A city borrows $800,000 in January because it does not receive property taxes
until May. It borrows on a tax anticipation note, which it will repay in May, when
the taxes are collected. How would the city classify the note if it were to prepare
financial statements on March 31?
a. as an other financing source
b. as a liability
c. as a revenue
d. as a direct increase in equity
30. Which of the following financial statements normally are prepared for a Special
Revenue Fund?
operating balance cash flows
statement sheet statement
a. yes yes no
b. no yes yes
c. yes yes yes
d. yes no yes
31. The accounting and financial reporting for the General Fund is least similar to that of a
a. capital projects fund
b. debt service fund
c. pension trust fund
d. special revenue fund
32. A favorable expenditures variance signifies that, during the year,
a. Unassigned fund balance increased
b. actual spending was less than budgeted spending
c. estimated revenues were less than actual revenues
d. total expenditures did not exceed total encumbrances
33. In governmental accounting, vouchers payable is most similar to which of the
following accounts used by business enterprises?
a. contributed capital
b. accounts payable
c. dividends payable
d. unearned revenues
34. Which of the following is not required to be prepared for the General Fund according
to GASB standards?
a. budgetary comparison statement or schedule
b. statement of revenues, expenditures, and changes in fund balance
c. balance sheet
d. all of the above are required
35. Which of the following basis of accounting should be used when preparing a
budgetary comparison schedule for a government’s General Fund?
a. budgetary basis of accounting
b. accrual basis of accounting
c. modified accrual basis of accounting
d. GASB recommends the accrual basis of accounting be used, but does not require it.
36. The total amount of taxes receivable from all taxpayers within a government’s
jurisdiction will be posted to which type of account?
a. a control account
b. a contra account
c. a net assets account
d. a subsidiary account
37. At the beginning of the year, a town adopted a budget based on estimated
revenues of $1,800,000 and appropriations of $1,780,000. Because of an
emergency late in the year, the town found it necessary to increase the sanitation
department appropriation by $8,000. What entry should the town make to record
the emergency appropriation?
a. debit estimated revenues; credit appropriations for $8,000
b. debit appropriations; credit budgetary fund balance for $8,000
c. debit budgetary fund balance; credit appropriations for $8,000
d. debit appropriations; credit estimated revenues for $8,000
38. On January 1, 2009, a city adopted a budget wherein estimated revenues were
$30,000 greater than the appropriations. Because of a slowdown in the economy,
it became apparent in June that there would be a shortfall of $25,000 in sales tax
collections. The city amended its budget to take account of the reduction in
estimated sales tax collections. What entry should the city make?
a. debit sales tax revenues and credit estimated revenues – sales tax for $25,000
b. debit appropriations and credit estimated revenues – sales tax for $25,000
c. debit estimated revenues – sales tax and credit sales tax revenues for $25,000
d. debit budgetary fund balance and credit estimated revenues – sales tax for
$25,000
39. A city that uses encumbrance accounting places a purchase order for three fire
trucks at a cost of $100,000 each, specifying that two are to be delivered in March
and one in August. The vendor delivers the first two trucks, and sends an invoice
for $200,000. How should the city handle the encumbrance accounting when it
prepares the $200,000 voucher to pay for the first two trucks?
a. it should make no encumbrance entry until all three trucks have been
received
b. it should reduce encumbrances by $100,000
c. it should reduce encumbrances by $200,000
d. it should reduce encumbrances by $300,000
Problems
40. (Journal entries – basic events and transactions)
Prepare entries to record the following events and transactions for Tropical
Township for the year 2013.
a. The Township adopted a budget calling for appropriations of
$360,000. The estimated revenues (all property taxes) were
$340,000.
b. The Township sent property tax bills amounting to $340,000 to
property owners.
c. Property owners paid $335,000 of property taxes to the Township.
d. A purchase order of $25,000 was sent to a vendor of supplies.
e. The supplies ordered in transaction d. were received in good order
and the accompanying invoice of $24,000 was approved.
41. (Journal entries – budgetary and financial)
Prepare journal entries to record the following transactions for Cosmotown for 2013.
The Town records encumbrances only for its Supplies appropriation.
a. Cosmotown adopted the following budget for the year:
Revenues:
Property taxes $275,000
Licenses and fees 35,000
Appropriations:
Salaries 255,000
Supplies 40,000
Interest 1,500
b. Property tax bills amounting to $275,000 were sent to the property owners.
c. Because property taxes were not due to be received for several months and
the town needed cash to finance its activities, Cosmotown borrowed
$100,000 from a local bank using tax anticipation notes.
d. Cosmotown paid salaries in the amount of $75,000.
e. The town sent out two purchase orders for supplies: purchase order A for
$6,000 and purchase order B for $5,000.
f. The town received $130,000 from property owners in payment of their
property taxes.
g. Cosmotown repaid the bank on its borrowing in transaction c. The amount
paid was $101,000, which included interest of $1,000.
h. The town collected $15,000 for fishing licenses.
i. The town received the supplies ordered on purchase order A in transaction e.
All the supplies arrived in good condition and the invoice for $6,100 was
approved for payment.
j. The town Treasurer paid the invoice in transaction i. for $6,100.
42. (Closing entries)
The preclosing trial balance of the General Fund for the City of Thomaston shows
the following balances at the end of its fiscal year.
Budgetary fund balance $ 10,000
Fund balance, beginning (actual) 150,000
Estimated revenues 620,000
Appropriations 610,000
Revenues (actual) 625,000
Expenditures 605,000
Based on information presented above:
a. Prepare closing entries for the budgetary and financial accounts.
b. Calculate the ending fund balance for the city of Thomaston. (Show your work.)
Answer:
43. (Preparing closing entries and financial statements)
Presented below is the adjusted trial balance for the General Fund of the Township of
Whitt at June 30, 2013, the end of the fiscal year. Based on this information, prepare,
in good form:
a. closing entries
b. the statement of revenues, expenditures, and changes in fund balance for the year
c. the balance sheet at June 30, 2013. (Classify the fund balance as Unassigned.)
Township of Whitt
General Fund
Adjusted Trial Balance
June 30, 2013
Cash
$ 6,200
Taxes receivable
40,000
Investments
65,000
Vouchers payable
38,750
Tax anticipation notes payable
12,750
Unassigned fund balance
57,000
Estimated revenues
101,000
Appropriations
99,000
Budgetary fund balance
2,000
Revenues-taxes
100,000
Revenues-other
2,080
Expenditures-personal services
94,700
Expenditures-supplies
4,680
0
$ 311,580
$ 311,580
