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Unformatted text preview: Chapter 4 End of Chapter Materials Solutions REVIEW QUESTIONS Q4-1 The major distinction between the commercial accounting cycle and the state and local government accounting cycle is that the latter includes budgetary accounting. That is, governments make journal entries to the estimated revenues, appropriations, and encumbrances accounts to integrate budgetary data with actual data. Doing so enables government officials to compare actual financial performance with budgeted performance which facilitates control. Q4-2 Zero. In the absence of a legal requirement or the dictates of financial management, a local government need not maintain any Special Revenue Funds. Most governments, however, maintain one or more Special Revenue Funds. Q4-3 A General Fund and a Special Revenue Fund are similar in that both account for "general government" activities and follow identical accounting and financial reporting practices. The two types of funds differ in that a Special Revenue Fund by definition accounts for revenue from a specific source that is "earmarked" for expenditure only for a specified purpose. For example, the laws of some governments require that a portion of the local sales tax revenues be accounted for in a Special Revenue Fund because such revenue, or a portion thereof, is dedicated to financing a particular activity, such as park and open-space maintenance. Q4-4 Governments prepare a minimum of two statements for their General Funds and Special Revenues Funds. These are (1) a Balance Sheet and (2) a Statement of Revenues, Expenditures, and Changes in Fund Balance (informally called the "operating statement"). Further, when a General Fund or a Special Revenue fund is subject to a legally-adopted annual operating budget (which is frequently the case in practice), governments prepare a third statement, the Statement of Revenues, Expenditures, and Changes in Fund Balance--Budget and Actual. Q4-5 Both. Accommodations to budgetary concepts result in modifications to "full" accrual accounting for revenue and expenditure recognition. Under the modified accrual concept, revenues are accrued if they are measurable and available (as opposed to being "earned" as is the case in commercial accounting). Modified accrual revenue recognition is designed to ensure that asset inflows recognized as revenue are, in fact, liquid. The general principle for expenditure recognition under modified accrual accounting is that expenditures should be recognized upon the incurrence of liabilities (in the same manner that business entities recognize expenses at the point they incur 4-1 liabilities). However, there are certain exceptions to this principle. Q4-6 Governments usually accrue property tax revenues, interest on investments, grant revenues, and sales tax and income tax revenues. Revenues that governments recognize upon receipt of cash include fees of various kinds (charges for licenses and permits, recreation access, etc.) and fines and forfeits....
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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.
- Spring '11