Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-1
CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT ACCOUNTS;
BUDGETARY ACCOUNTING
OUTLINE
Number
Topic
Type/Task
Status
(re: 18/e)
Questions:
3-1
Program and general revenues
Compare
3-6
3-2
Depreciation expense
List
Same
3-3
Operating and budgetary statements
Compare
New
3-4
Extraordinary and special items
Define and compare
Same
3-5
Revenue, Other Financing Sources,
Expenditures, Other Financing Uses
Compare
Same
3-6
Encumbrances
Explain
New
3-7
Budgetary fund balance and fund balances
Compare
Same
3-8
Budgetary comparison schedules/statements
Explain
Revised
3-9
Budgetary and resource outflow accounts
Compare
Same
3-10
Allotments
Explain
Revised
Cases:
3-11
Revenue and expense/expenditure
classification
Research, analyze
Revised
3-12
Budgetary comparison schedule
Research, analyze
Revised
3-13
Estimating the required property tax rate;
economic and political considerations
Analyze, calculate,
explain
New
3-14
National Center for Education Statistics
Research, calculate
Revised
Exercises/Problems:
3-15
CAFR
Examine
Same
3-16
Various
Multiple Choice
5 and 7 new;
other items
are same or
revised
3-17
Program and general revenue
Classify
Same
3-18
Expenditure classifications
Classify
Revised
3-19
Revenue classifications
Classify
Revised
3-20
Recording budget and ending fund balance
Explain and calculate
Same
3-21
Budgetary control over expenditures
Examine and analyze
New
3-22
Recording budget
Journal entries
Revised
3-23
Recording encumbrances and expenditures
Journal entries
New
3-24
Recording budgetary and operating
transactions
Journal entries,
calculate
Same
3-25
Subsidiary ledgers
Calculate
Same
3-26
Division budget report
Analyze and explain
New
3-27
Government-wide statement of activities
Prepare
Same
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-2
CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT
ACCOUNTS; BUDGETARY ACCOUNTING
Answers to Questions
3-1. Program revenue is tied to a specific function or program of government. Generally, the
program or function helped to generate the revenue; for example, it may have applied for
and received a grant to help with its operations or to help purchase capital assets it needs.
General revenue is not tied to a specific function or program of government. Examples of
general revenues include all taxes. Taxes are not raised by the specific actions of a
function or program, even though they may be restricted for use. Thus, the difference
between a program and a general revenue is the ability to tie the revenue to a specific
function or program of government.
General Problem Information: Program and general revenues
Learning Objective: 3-1
Topic: Reporting of Expenses and Revenues at the Government-wide Level
Bloom’s Taxonomy: Understand
3-2. Depreciation expense can be reported on the statement of activities as either a direct
expense or an indirect expense. As a direct expense, it can be reported as an expense of
the function with which it clearly identifies (e.g., infrastructure would be an expense of
the public works or a transportation function), or it can be allocated to functions it
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-3
Ch. 3, Answers, Question 3-2 (Cont’d)
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
3-3. Students should be able to identify some of the following similarities and differences
between (1) the statement of revenues, expenditures, and changes in fund balance
(operating statement), and (2) the schedule of revenues, expenditures, and changes in
fund balance—budget and actual (comparison schedule):
Similarities:
• Both reports are period of time reports that cover the activity in the fiscal period.
Both arrive at changes in fund balance for the reporting period.
• Both reports provide columns for the General Fund and major funds. However,
the budgetary comparison schedule’s major funds may not align with the
operating statement classifications, since the budgetary comparison schedule
provides for only those major special revenue funds with legally adopted budgets.
Differences:
• The operating statement is presented on a GAAP basis; whereas, the budgetary
comparison schedule is presented on a budgetary basis, which may not be GAAP.
• The operating statement includes all governmental funds; therefore, it provides a
column for total governmental funds. There is no total column in the budgetary
comparison schedule since not all governmental funds are required to prepare a
budgetary comparison schedule. (There may be a variance column in the
budgetary comparison schedule, but that is not required it is optional.)
General Problem Information: Operating and budgetary statements
Learning Objective: 3-2
Learning Objective: 3-3
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-4
Ch. 3, Answers, Question 3-3 (Cont’d)
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
3-4. Extraordinary items are both unusual in nature and infrequent in occurrence. The FASB
does not recognize extraordinary items; therefore, there is no extraordinary item
classification under the FASB standards.
General Problem Information: Extraordinary and special items
Learning Objective: 3-1
Topic: Reporting of Expenses and Revenues at the Government-wide Level
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
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
or service, whereas other financing uses represent transfers of financial resources from
one fund to another fund and other resource uses that do not meet the definition of
expenditures. Other financing sources have the same effect on fund balance as revenues,
General Problem Information: Revenue, Other Financing Sources, Expenditures, Other
Financing Uses
Learning Objective: 3-2
Topic: Structure and Characteristics of the General Fund and Other Governmental Funds
Bloom’s Taxonomy: Understand
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-5
3-6. Encumbrances would remain open at year-end if the government has commitments
against appropriations that are outstanding at fiscal year-end, and the government is
required or intends to honor the outstanding commitments in the new fiscal year. If the
government will not honor outstanding commitments in the new fiscal year,
Encumbrances should be closed at fiscal year-end, releasing the resources for use in the
new fiscal year.
General Problem Information: Encumbrances
Learning Objective: 3-5
Topic: Budgetary Accounting
3-7. Budgetary Fund Balance is a nominal budgetary account that is closed at the end of the
budgetary period. Its sole purpose is to capture the net difference between the anticipated
inflows and outflows for the budgetary period. This is very different from Fund Balances,
which is a permanent account that appears on the balance sheet and represents the
residual of governmental fund assets and deferred outflows of resources minus liabilities
General Problem Information: Budgetary fund balance and fund balances
Learning Objective: 3-5
Topic: Budgetary Accounting
3-8. Budgetary comparison schedules (or statements) are required to be presented for the
General Fund and all major special revenue funds for which a budget is legally 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 reported in the statement of revenues, expenditures, and
changes in fund balances should be on the GAAP basis. GASB standards identify several
possible differences between GAAP and budgetary financial accounting. These include
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-6
Ch. 3, Answers, Question 3-8 (Cont’d)
General Problem Information: Budgetary comparison schedules/statements
Learning Objective: 3-3
Topic: Reporting Budgeted and Actual Results
Bloom’s Taxonomy: Understand
3-9. 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. Expenditures and encumbrances are both charges
against appropriations. An encumbrance is a charge for an estimated amount at the time
goods are ordered; an expenditure is a charge against an appropriation for an actual
Expenditures are recorded in governmental fund operating statements, while expenses are
found in the government-wide financial statements as well as in the proprietary financial
statements. Appropriations and encumbrances are found only on the budgetary
comparison schedule.
General Problem Information: Appropriations, expenditures, encumbrances, and
expenses
Learning Objective: 3-4
Learning Objective: 3-5
Topic: Terminology and Classification for Budgetary and Operating Statement
3-10. A government would use an allotment when it is trying to control spending over the
budgetary period. An allotment releases only a portion of the appropriation, thereby
preventing a function or program from spending too much of its appropriation early in the
budgetary period.
General Problem Information: Allotments
Learning Objective: 3-5
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-7
Ch. 3, Answers, Question 3-10 (Cont’d)
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy
Solutions to Cases
3-11. Responses to each of the questions in this case will depend on how a particular city
classifies its revenues and expenses/expenditures.
b. On the government-wide statement of activities, students may well find one or two
indirect expense line items. The most common item may be interest. It is also possible
there will be some unallocated depreciation expenses.
d. Students are almost certain to find different amounts reported for expenses on the
statement of activities and expenditures on the statement of revenues, expenditures,
and changes in fund balances. Among other explanations, expenses exclude outlays
for capitalized assets, but include depreciation expense; expenditures include capital
outlays but exclude depreciation expense.
e. It is unusual to see special or extraordinary items reported. If reported, the items
and/or the amounts may not be the same on the two statements. Differences will be
the result of the different bases of accounting. For example, the loss on disposal of an
asset would appear on the statement of activities; however, if it did not result in the
use of resources it would not appear on the statement of revenues, expenditures, and
General Problem Information: Revenue and expense/expenditure classification
Learning Objective: 3-1
Learning Objective: 3-2
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-8
Ch. 3, Solutions, Case 3-11 (Cont’d)
Topic: Classification and Reporting of Expenses and Revenues at the Government–
wide Level; Structure and Characteristics of the General Fund and Other
Governmental Funds
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. Detail is generally the same between the statement and the schedule. However, in
some instances more detail is provided for revenues and expenditures in the
budgetary comparison schedule. The reason for including more detail in the
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.
d. If actual revenues and/or expenditures are prepared on a non-GAAP budgetary basis,
the budgetary comparison schedule should indicate such, either in the schedule
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. There should be small or no instances when expenditures
exceeded appropriations given that appropriations are the legal spending limit. In
cases where expenditures are greater than appropriations, an explanation should be
provided.
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-9
Ch. 3, Solutions, Case 3-12 (Cont’d)
General Problem Information: Budgetary comparison schedule
Learning Objective: 3-3
Learning Objective: 3-4
Topic: Reporting Budgeted and Actual Results;
Terminology and Classification for Budgetary and Operating Statement Accounts
3-13. a. The estimated amount of the required property tax levy is calculated, in good form,
as follows:
City of Erickson
General Fund
Estimate of Amount to be Raised by Property Taxes
For Fiscal Year Ending June 30, 20X2
As of Current Date—May 1, 20X1
Estimated resource requirements:
Estimated expenditures, remainder of FY 20X1 $ 13,361,475
Estimated resources available and to be raised,
other than from property taxes:
Actual spendable fund balances, May 1 of FY 20X1 $18,250,000
From estimated revenues, remainder of FY 20X1 11,470,900
From revenues in FY 20X2, other than property taxes 64,379,970
Total estimated resources available, other than
property taxes 94,100,870
Amount required from property taxes in FY 20X2 $ 22,462,480
b. Calculation of the required tax rate (assuming the full tax levy will be collected):
Since Erickson 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 $51,951,404.44. The
required tax rate = $22,462,480 / $51,951,404.44 = $0.432 per $100 of assessed
valuation.
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
Ch. 3, Solutions, Case 3-13 (Cont’d)
FY 20X1 tax levy: $0.44 × ($51,951,404.44 / 1.05) = $21,770,112
The city council can point out to taxpayers that even with the provision of the pay
raise, the property tax rate for the period will decline. However, taxpayers may still
be unhappy given their tax bills will increase.
General Problem Information: Estimating the required property tax rate; economic
and political considerations
Learning Objective: 3-4
3-14. The purpose of this exercise is to familiarize the students with the government
website and the abundance of data and information that is available through federal
government websites. Not only is information available about public schools, but
there is also information available about post-secondary education on the site.
b. The purpose of the National Center for Education Statistics (NCES) is to
collect and analyze data related to education in the U.S. and other nations.
Located in the Department of Education, NCES is mandated to collect,
collate, analyze, and report complete statistics on the condition of American
education; conduct and publish reports; and review and report on education
General Problem Information: National Center for Education Statistics
Learning Objective: 3-6
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB Industry
Level of Difficulty: Medium
Solutions to Exercises and Problems
3-15. Each student should have a different governmental annual report, so will have different
answers to the questions in this exercise. Some time spent in class to allow students to
report on their own answers and to get an idea of the range of answers of other students is
useful.
General Problem Information: CAFR
Learning Objective: 3-1
Learning Objective: 3-2
Learning Objective: 3-3
Topic: Reporting of Expenses and Revenues at the Government-wide Level; Structure
and Characteristics of the General Fund and Other Governmental Funds;
3-16. 1. c. 5. a. 9. c. 13. b.
3. b. 7. c. 11. b. 15. a.
4. d. 8. d. 12. c.
General Problem Information: Various
Learning Objective: 3-1
Learning Objective: 3-5
Topic: Various Chapter Topics
Bloom’s Taxonomy: Understand
2. P – program revenues. 7. G – general revenues.
4. G – general revenues. 9. P – program revenues.
5. P – program revenues. 10. P – program revenues.
General Problem Information: Program and general revenues
Learning Objective: 3-1
Topic: Program Revenues and General Revenues
Bloom’s Taxonomy: Remember
3-12
3-18. 1. F – function. 6. A – activity.
3. A – activity. 8. F – function.
5. O – object. 10. O – object.
General Problem Information: Expenditure classifications
Learning Objective: 3-4
Topic: Classifications of Appropriations and Expenditures
3-19. 1. T – taxes . 6. CS – charges for services.
3. LP – licenses and permits. 8. FF – fines and forfeits.
5. I – intergovernmental. 10. M – miscellaneous.
General Problem Information: Revenue classifications
Learning Objective: 3-4
Topic: Classifications of Estimated Revenues and Revenues
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy
3-20.
Debits Credits
a. ESTIMATED REVENUES 32,150,000
BUDGETARY FUND BALANCE 25,000
APPROPRIATIONS 32,175,000
b. The answer is no to both parts of the question. Any fund balances, other than
nonspendable and those subject to minimum fund balance requirements by ordinance or
c. Fund Balance—Unassigned on September 30 after all closing entries will be $505,000, as
shown below:
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-13
Ch. 3, Solutions, Exercise 3-20 (Cont’d)
SPENDABLE FUND BALANCES
Fund Balance—Unassigned (beginning balance) $ 500,000
Fund Balance—Unassigned (ending balance) $ 505,000
General Problem Information: Recording budget and ending fund balance
Learning Objective: 3-5
Topic: Budgetary Accounting
Bloom’s Taxonomy: Apply
3-21. CITY OF GALAXY
a. The balance in Appropriations after subtracting the Encumbrances amount is $3,205
($8,000-$4,795 for the PO issued January 21). This is also the amount remaining in the
b. No, not in the Equipment account. After receiving the item on January 30, the available
appropriation balance is $3,205, which does not provide sufficient legal authorization to
order the new computer with an estimated cost of $3,600.
c. The balance available in Appropriations after issuing the PO on January 15 and
subtracting the Encumbrance amount is $4,500. The amount in the Appropriations
account after canceling the PO and adjusting for the voucher issued on January 30 is
$4,505. If the Office Supplies account can be used to help purchase the copier there
would be sufficient appropriations available.
Chapter 03 – Governmental Operating Statement Accounts; Budgetary Accounting
3-14
Ch. 3, Solutions, Exercise 3-21 (Cont’d)
General Problem Information: Budgetary control over expenditures
Learning Objective: 3-5
Topic: Budgetary Accounting
Bloom’s Taxonomy: Analyze
Level of Difficulty: Hard
3-22. TOWN OF WILLINGDON
General Ledger Subsidiary Ledger
Debits Credits Debits Credits
ESTIMATED REVENUES 16,558,700
BUDGETARY FUND
Estimated Revenues Ledger:
TAXES 14,900,000
INTERGOVERNMENTAL
REVENUES 600,000
CHARGES FOR SERVICES 810,500