Ives_SM_ch02 - Chapter 2 End of Chapter Materials Solutions...

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Unformatted text preview: Chapter 2 End of Chapter Materials Solutions REVIEW QUESTIONS Q 2-1 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. Q 2-2 The basic purpose of fund accounting is to help ensure compliance with legal restrictions on the use of governmental resources. Funds are generally established pursuant to law. They serve as a control mechanism to ensure budgetary compliance and help ensure resources are spent for the specific purposes intended. To some extent, funds accomplish what would otherwise be done by creating a separate entity. Q 2-3 The three categories of funds are: governmental-type (to account for the basic day-to-day-services provided by government; proprietary-type (to account for governmental activities that operate in a manner similar to private sector enterprises in the sense that they charge fees for services); and fiduciary-type (to account for resources held in a trust or agency capacity for others). 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. The current financial resources measurement focus is concerned with flows of cash and near-cash items. It takes account of current financial resources only, and does not consider long-term assets (such as capital assets) and long-term liabilities (such as long-term debt). 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. The revenue aspect of the budget focuses on the availability of resources for spending. When budgets provide authority to spend, the authority relates to current outflows of budgetary resources. Thus, the budget and budgetary measurements focus on the short run. For example, once resources are used to acquire capital assets, the resources are no longer available for spending. Governmental accounting has historically supported the budget. As a result, accounting measurements have tended to be similar to budgetary measurements....
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This note was uploaded on 11/20/2011 for the course ACCOUNTING Government taught by Professor Turn during the Spring '11 term at University of Houston.

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Ives_SM_ch02 - Chapter 2 End of Chapter Materials Solutions...

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