ACC 460 chap 2 sm - Chapter 2 Fund Accounting Questions for...

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Unformatted text preview: Chapter 2 Fund Accounting Questions for Review and Discussion 1. In governmental accounting, a fund is a fiscal and accounting entity with a self- balancing set of accounts used to account for an organizations resources and claims against those resources. In business accounting, by contrast, funds generally refer either to working capital (current assets less current liabilities) or to selected components of working capital. 2. The accounting equation as applied in government accounting and not-for-profit accounting is essentially the same as that applied in business accounting. The primary difference is that in business, assets = liabilities + owners equity , whereas in government and not-for-profit entities, since there are no owners as the term is used in business, assets = liabilities + fund balance . 3. Governments establish funds neither to account for specific functions nor to divide evenly their resources. Instead, they create funds mainly to promote control and accountability over restricted resources. The general fund of the city is probably larger than all of the special revenue funds combined because most of the citys assets are unrestricted and the unrestricted assets can be aggregated in a single fund. 4. There are no capital projects reported in the capital projects fund and generally no long-term debts reported in the debt service fund because these funds are maintained to account for the resources that will be used to construct or acquire capital assets or to pay the interest and principal on long-term debts. These resources are set apart from other resources because they can only be used for their specified purposes. 5. The presence of long-lived assets and long-term debt on the balance sheets of enterprise and internal service funds indicates that the assets and debts are within the funds measurement focus. It thereby implies that the funds are on a full accrual basis . 6. Proprietary funds are used to account for business-type activities and they adhere to business-type accounting principles. They typically charge for the goods or services they provide and need data on the full cost (including depreciation) of services provided so that they can establish prices. Governmental funds, by contrast, are accounted for on a modified accrual basis. They receive their revenues from taxes, grants and other sources that are not necessarily tied to cost of service. 7. Fiduciary funds are used to account for resources held by the government as either a trustee (a party that administers property for a beneficiary) or an agent (one who acts on behalf of another). The two main types are trust funds and agency funds. 2-1 Trust funds are used to account for assets that the government holds for the benefit of parties other than the government itself. Agency funds are used to account for assets (e.g., taxes collected by one government on behalf of another) that a government holds temporarily for other parties....
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ACC 460 chap 2 sm - Chapter 2 Fund Accounting Questions for...

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