CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT ACCOUNTS;
BUDGETARY ACCOUNTING
3-2
CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT
ACCOUNTS; BUDGETARY ACCOUNTING
Answers to Questions
3-1. The governmental fund financial statements report detailed current financial resources
information intended to help users assess current period fiscal accountability—whether
revenues were raised from authorized sources and expended for authorized purposes.
Government-wide financial statements, on the other hand, are intended to provide a broad
Level of Difficulty: Easy
3-2. Using the net (expense) or revenue format recommended by GASB standards requires
reporting of expenses that are directly related to a function or program on the same line as
that function or program. Indirect expenses, those that are not directly related to a
function or program, such as interest on long-term debt, should be reported on a separate
3-3
Ch. 3, Answers (Cont’d)
3-3. GASB recommends using a “cost of programs” format for the statement of activities.
Using this format, the direct expenses of each function or program are reported on the
same line as revenues related to that function or program; the difference is reported as net
(expense) revenue. General revenues are added at the bottom of the statement to report
3-4. a. General revenues.
b. Program revenues.
c. Program revenues.
d. Program revenues.
3-5. Revenue is defined as an increase in fund financial resources other than from financing
sources such as interfund transfers and debt issue proceeds. Transfers into a fund and the
proceeds of debt issues and sales of government assets are examples of inflows classified
as other financing sources of the fund. Expenditures represent the cost to purchase a good
3-4
Ch. 3, Answers 3-5 (Cont’d)
General Problem Information: Revenue, Other Financing Sources, Expenditures, Other
3-6. a. Organization unit f. Both character and object
b. Function g. Program
c. Activity h. Function
3-7. An appropriation is an authorization by the legislative branch for administrators to incur
expenditures for specified purposes not to exceed specified amounts. Usually the
authorization is for a limited time. If the appropriation amount is allocated for spending
in specific time periods, it is termed an allotment. Expenditures and encumbrances are
3-5
Ch. 3, Answers (Cont’d)
3-8. a. Taxes e. Intergovernmental revenue
b. Charges for services f. Miscellaneous revenues
c. Licenses and permits g. Charges for services
3-9. Budgetary comparison schedules (or statements) must be provided for the General Fund
and each major special revenue fund for which a budget is adopted. In order for budget
to actual comparisons to be meaningful, actual revenues and expenditures must be
reported in the same manner as the budgeted amounts. Actual revenues and expenditures
3-10. Public school systems are expected to follow the classification system specified by the
National Center for Education Statistics (NCES), as refined or mandated by a state
education oversight body. The NCES system combines the GASB expenditure
classification structure into nine categories, most of which are necessary for adequate
3-6
Ch. 3, Answers 3–10 (Cont’d)
General Problem Information: Public school accounting systems
Learning Objective: 3-6
Topic: Accounting for Public School Systems
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy
3-11. Students should easily be able to locate a city’s Web site, then explore the Finance
Department (or comparable name) link and look for links to financial reports. Responses
to each of the questions in this case will depend on how a particular city classifies its
revenues and expenses/expenditures.
deferred inflow of resources on the latter statement.
c. Expenditures will generally be classified by function on the statement of revenues,
expenditures, and changes in fund balances and, infrequently, by program. Students
are almost certain to find different amounts reported for expenses on the statement of
3-7
Ch. 3, Solutions 3-11 (Cont’d)
General Problem Information: Revenue and expense/expenditure classification
3-12. Again the responses to individual questions will depend on the practices of the particular
city selected. Some general expectations for each question include:
a. Typically more detail is provided for revenues and expenditures in the budgetary
comparison schedule, though not always. The reason for including more detail in the
budgetary comparison schedule, both for revenues and expenditures, is to better
b. Students will probably find that actual revenues on the budgetary comparison
schedule agree in amount with those reported on the GAAP operating statement. If a
difference is noted between these amounts, it is likely attributable to revenues being
recognized on a cash basis for budgetary purposes, rather than modified accrual.
c. Some students will discover that actual expenditures on the budgetary comparison
heading or the Actual column heading.
e. Although a variance column is not required by GASB standards, it is difficult to
imagine a city not providing a column showing the variance between the actual and
the final budget amounts.
f. The notes to the financial statements or the RSI will generally include disclosure of
Topic: Reporting Budgeted and Actual Results
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Research
Level of Difficulty: Medium
3-8
Ch. 3, Solutions (Cont’d)
3-13. a. The estimated amount of the required property tax levy is calculated, in good form,
as follows:
University City
General Fund
b. Calculation of the required tax rate (assuming the full tax levy will be collected):
Since University City’s legal tax rate is expressed as $ per $100 of assessed
valuation, the first step is to divide the assessed valuation by 100, giving
$49,477,528. The required tax rate = $10,143,000 / $49,477,528 = $0.205 per $100
by 5 percent from last year. A comparative analysis shows the following results.
FY 20X1 tax levy: $0.20 X ($49,477,528 / .95) = $10,416,322
FY 20X2 tax levy: $0.205 X $49,477,528 = $10,142,893, which is actually less than
20X1 levy, because of the 5 percent decrease in assessed valuation. Despite the
3-9
Ch. 3, Case 3-13 Solution (Cont’d)
one-half cent increase in property tax rate. They may view the proposal as “a tax
increase is a tax increase, regardless of the amount.” If so, city officials may have to
3-14. a. The reader should note the extensive coding scheme shown in Exhibit 29 of the
Texas Education Agency’s (TEA) Financial Accounting and Reporting (FAR)
document. As described in Chapter 3 of the text, both the GASB and NCES require
revenues to be classified by fund and source. For financial reporting purposes,
5 in the account classification position. For example, page 377 of the TEA FAR
and 2000 classifications (see Appendix B of Chapter 3). Under object 5700,
5711. As one peruses all the coding under object 5700, it should be apparent that the
coding structure captures both GASB and NCES requirements.
Similarly, page 412, Exhibit 37, of the TEA FAR document shows that
3-10
Ch. 3, Solutions, Case 3-14 (Cont’d)
classification (positions 1-3) has already been discussed. The function code
classification (positions 4-5) is very extensive (see summary table on page 294 of the
TEA FAR document) and essentially follows the NCES function classifications
Level of Difficulty: Medium
3-15. Each Instructors may wish to provide specific instructions for the format of the students’
brief reports. The Market Research Report referenced can be obtained free of charge from
the GFOA website. Students will need to access additional information to update on
progress or additional types of software.
Excel Add-ons are solutions based on Excel software, which have been enhanced with
additional features, such as the ability to collaborate and additional security. These
3-11
Ch. 3, Solutions, Case 3-15 (Cont’d)
personnel regarding designing and configuring the system to meet the government’s
needs.
Relational Systems are more user friendly and capitalize on the concept of online data
processing. Advantages may include lower costs, since these systems are often offered in
conjunction with other systems, such as accounting and payroll. This may also make it
easier to connect the workflows to other components of the systems, and simplify training
by presenting a coordinated look and feel to end users. Relational systems are specifically
designed for particular industries, so there is less need for the users to be able to design
and configure their own system. Disadvantages include the fact that relational systems
are a component of larger systems, and so are not stand-alone solutions. Relational
systems are not designed for analysis or reporting, so additional software is necessary to
provide these services. Data accessibility is not a strength of relational systems, and they
are closely connected to the organization’s accounting system and chart of accounts. This
may make reporting by goals or programs more complicated. To be most effective, a
relational system must have the capability to be reconfigured to more closely match a
specific organization, and this may result in a cost comparable to a CPM system.useful.
General Problem Information: Accounting Information Systems
Learning Objective: 3-5
Topic: Accounting Information Systems
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Critical Thinking
Level of Difficulty: Medium
3-16. Each student should have a different governmental annual report, so will have different
3-17. 1. c. 6. d.
2. d. 7. b.
3. b. 8. c.
4. d. 9. d.
5. a. 10. a.
3-12
Chapter 3, Solutions, 3–17 (Cont’d)
3-18.
Debits Credits
a. ESTIMATED REVENUES 32,150,000
BUDGETARY FUND BALANCE 25,000
To close expenditures for the year (32,185,000)
Fund Balance—Unassigned as of 9-30-2015 $ 505,000
3-13
Chapter 3, Solutions, 3–18 (Cont’d)
General Problem Information: Recording budget, Ending spendable fund balance
3-19. Town of Evergreen
a. No, not in the Equipment account. After receiving the item on January 30,
the available appropriation balance is $1,510, which does not provide
sufficient legal authorization to order the new computer with an estimated
Level of Difficulty: Easy