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REVIEW QUESTIONS
Q 2-1 A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and
Q 2-2 The basic purpose of fund accounting is to help ensure compliance with legal restrictions on the
Q 2-3 The three categories of funds are: governmental-type (to account for the basic day–to-day-services
Q 2-4 Measurement focus relates to what is being expressed in the financial statements and which
resources are being measured. The economic resources measurement focus is used in measuring whether
revenues exceeded expenses. It takes account of transactions and events that affect all the resources
available to the activity – financial and capital. Proprietary-type and fiduciary-type funds use the economic
resources measurement focus.
Governmental-type funds use the current financial resources measurement focus,
Q 2-5 The governmental budget process is one of estimating the yield from taxes and other sources and
authorizing the expenditure of those resources. Although most state laws require governmental budgets to
be balanced, they do not specify that budgetary balance must be achieved in the accrual accounting sense.
Q 2-6 Under the full accrual basis of accounting, revenues are recognized in the period in which they are
earned, and expenses are recognized when resources are consumed or liabilities are incurred.
Under the modified accrual basis of accounting, revenues are recognized in the period in which
Q 2-7 The governmental-type funds and their purposes are:
General – to account for all financial resources not accounted for in some other fund; or more generally,
the day-to-day general activities of government.
Q 2-8 The controller is at least partially correct. The general rule in governmental accounting is to use as
few funds as possible in the accounting system. Using fewer funds makes accounting and budgeting more
Q 2-9 There are no capital assets in governmental-type funds because those funds account only for
inflows and outflows of financial resources. Governmental-type funds can be used and indeed are used to
Q 2-10 The proprietary funds and their uses are as follows:
Enterprise – to account for resources used to supply goods and services, for a fee, to users primarily
external to the government itself, such as the general citizenry.
Q 2-11 Enterprise funds and internal service funds use full accrual accounting in order to determine full
Q 2-12 The fiduciary-type funds and their uses are as follows:
Pension Trust – to account for resources held in trust for employee retirement plans and other employee
benefit plans.
Q 2-13 Agency Funds do not have a fund balance because the governmental unit does not own the assets.
DISCUSSION SCENARIOS AND ISSUES
D 2-1 The General Fund was used to account for basic day–to-day services, including sanitation. The
suggestion to cover all sanitation costs through a separate user fee requires establishment of an Enterprise
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D 2-2 The proposal presumably calls for billing each department when they use the central motor pool so
the pool will be able to cover all operating costs. This requires establishing an Internal Service Fund.
D 2-3 These are the some of the points that might be covered:
a. Excessive use of Special Revenue Funds reduces the government’s budgetary flexibility. Doing
away with them may help the government finance higher priority needs without raising taxes.
D 2-4 These are some of the points that might be covered.
a. The mayor’s proposal is undoubtedly illegal. Advise the mayor to seek another appropriation if he
EXERCISES
E 2-1 (5 minutes)
2. Governmental-type
E 2-2 (5 minutes)
1. Capital Projects Fund – Current financial resources (CFR); Modified accrual basis (MA)
2. General Fund – CFR; MA
E 2-3 (5 minutes)
1. General Fund
E 2-4 (15 minutes)
1. False. Unless legally mandated or financial resources are being accumulated for debt service
E 2-5 (10 minutes)
4. False. Property tax revenues are recognized to the extent they are measurable and available.
E2-6 (15 minutes)
4. False. Expenses are accrued if applicable to the current year, regardless of when they ae
E2-7 (10 minutes)
E 2-8 (15 minutes)
Financial statements prepared for Enterprise Funds differ from financial statements prepared for
the General Fund because Enterprise Funds use the economic resources measurement focus and accrual
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E 2-9 (20 minutes)
Peachum cannot do all he wants to do, but may be able to do part of it, for the following reasons:
a. The fund balances of the Special Revenue and Capital Projects Funds are restricted by law.
E 2-10 (15 minutes)
1. General Fund – $605,000; Enterprise Fund – $605,000
2. General Fund – $100,000; Enterprise Fund – $5,000
3. General Fund – $13,000; Enterprise Fund – $3,000
E 2-11 (5 minutes)
1. Capital Projects Fund
E 2-12 (10 minutes)
1. Enterprise Fund, General Fund
E 2-13 (10 minutes)
1. Enterprise Fund
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E 2-14 (5 minutes)
One way to reduce the number of governmental–type funds is to combine funds that have a similar
E 2-15 (20 minutes)
Because of the nature of this exercise, no specific advance solution can be prepared. These
examples are illustrative of potential solutions.
1. A county would establish an Investment Trust Fund if school districts within the county are
how much belongs to each county.
3. A Special Revenue Fund would be used to account for parks admissions fees that must be
used for parks maintenance purposes.
5. An Internal Service Fund would be used to account for the activities of a central purchasing
E 2-16 (10 minutes)
1. EF
PROBLEMS
P 2-1 (Easy – 20 minutes)
The three fund categories used in governmental accounting are:
Governmental-type funds – These funds are used to account for general governmental activities
(the day–to-day operating activities) and resources that are restricted as to use. The General Fund accounts
P 2-2 (Moderate – 20 minutes)
The following abbreviations are used in the answer table:
Current financial resources measurement focus CFR
Economic resources measurement focus ER
Measurement Basis of Financial
Type of fund Focus Accounting Statements
1. General CFR MA BS, SRECFB
2. Capital Projects CFR MA BS, SRECFB
P 2-3 (Moderate – 25 minutes)
1. This municipal clinic probably would be set up as an Enterprise Fund because it charges fees
2. A centralized printing operation should be set up as an Internal Service Fund. This will allow
3. A regional airport could be established as a separate governmental corporation or as a unit of
4. A Special Revenue Fund would be established to accumulate the taxes dedicated to spending
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P 2-4 (Moderate – 25 minutes)
1. GF, DSF
6. CPF
7. GF
11. GF
P 2-5 (Moderate – 25 minutes)
1. EF
5. GF
6. EF, GF
12. PF, SRF
13. EF
P 2-6 (Moderate – 10 minutes)
1. GF, PTF
5. GF, CPF
P 2-7 (Moderate – 25 minutes)
1. GF, PTF (This assumes the General Fund is the only fund that makes contributions to the PTF. It
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7. PF (The investment income should be distributed to a Special Revenue Fund, but could go to the
13. EF
P2-8 (Moderate – 25 minutes)
1. Measurement focus refers to what is being expressed and which resources are being measured
2. The economic resources measurement focus is used when an entity wants to determine
whether its revenues exceed its expenses. To do this, it takes account of all resources –
3. Under the accrual basis of accounting, revenues are recognized when earned and expenses are
recognized when incurred (or consumed), regardless of cash inflows or outflows. Under the
P2-9 (Difficult – 30 minutes)
1. A municipally-operated water utility is concerned with determining the cost of providing
water services, so that it can bill in order to meet its financial objectives. Its financial
2. The General Fund is concerned with measuring the amount of financial resources currently
3. Advantages of current financial resources measurement focus / modified accrual basis:
a. Generally tracks the budget, so it helps provide data useful for budget purposes.
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Disadvantages of current financial resources measurement focus / modified accrual basis:
a. Has the potential for severely understating the costs of operating government for a
P 2–10 (Moderate – 20 minutes)
Jasmin City
General Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
For the Year Ended December 31, 2013
Revenues:
Property taxes $7,000,000
Licenses and permits 1,000,000
Other financing sources (uses):
Transfers in 700,000
P 2-11 (Moderate – 15 minutes)
1. b
5. a
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P 2-12 (Moderate – 20 minutes)
1. b
5. b
10. b
P 2-13 (Moderate – 15 minutes)
1. b
2. c
P2–14 (Moderate – 15 minutes)
Item (a) Expenditures (b) Expenses
Salaries paid in 2012 3,000,000 3,000,000