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Advanced SolutionsManual_Ch17

Advanced SolutionsManual_Ch17 - CHAPTER 17 ANSWERS TO...

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CHAPTER 17 ANSWERS TO QUESTIONS 1. The performance of services by nonbusiness organizations is based on social need rather than on the profit motive and there is no conscious or deliberate effort by such organizations to derive a profit from their operations. Nonbusiness organizations are not operated for the financial benefit of a specific individual or group of individuals and those who contribute resources to nonbusiness organizations do not necessarily benefit proportionately or at all from the services provided by such organizations. There is no proprietary interest in nonbusiness organizations and the equity interest in the net assets of such organizations cannot be sold or exchanged. 2. A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. 3. At any particular point in time the unreserved fund balance of an expendable fund entity represents the balance of financial resources that are available for expenditure for the specified purposes or objectives for which the fund was created. 4. Major classifications of increases in expendable fund resources are revenues, debt issue proceeds and transfers from other funds. Decreases in expendable fund resources are classified as expenditures or as transfers to other funds. 5. In accounting for expendable funds entities revenue is recognized when (1) it can be objectively measured and (2) it is available to finance expenditures of the current period. In contrast, in accounting for profit-oriented enterprises revenue is ordinarily not recognized until (1) it can be objectively measured and (2) the earnings process is complete or substantially complete. 6. Municipality: Functions – Public Safety Activity – Vice Control Organization Unit – Police Department Object – Travel Functional and activity classifications are recommended for external financial reporting. 7. An appropriation is an authorization enacted by a legislative body or granted by a governing board to make expenditures for a specified purpose. An encumbrance is an obligation in the form of a purchase order or other commitment that reduces appropriation authority and is formally recorded in the accounting records. 17 - 1
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An expenditure is a decrease in the net financial resources of a fund entity incurred to carry out the activities or objectives of the fund. A disbursement represents the payment of cash for an expenditure. Such payments may precede the expenditure (an advance), coincide with the expenditure (a direct payment), or follow the expenditure (the payment of a liability).
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