Chapter 12 Solutions

Chapter 12 Solutions - 12-1 Instructors Manual for...

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12-1 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 3E Chapter 12 UNIQUE ASPECTS OF ACCOUNTING FOR STATE AND LOCAL GOVERNMENTS PART I: THE RECORDING PROCESS QUESTIONS FOR DISCUSSION 12-1. Governments have three major classes of funds. These are Governmental Funds, Propriety Funds, and Fiduciary Funds. Governmental Funds are the typical funds used to operate most governments. These include funds such as the General Fund, Special Revenue Funds, Capital Project Fund, and Debt Service Fund. The General Fund is similar to the Operating Fund or Unrestricted Fund in not- for-profit organizations. This is the fund that is used for the bulk of the day-to-day revenues and expenses of the government. Special Revenue Funds are used for specific identifiable purposes. These are akin to restricted funds for not-for-profit organizations. The Capital Projects Fund is used to account for acquisitions of plant or equipment. The Debt Service Fund is used to account for current payments of principal and interest on long-term debt. Governmental funds also include permanent funds, which are similar to endowment funds. Proprietary Funds are used to account for activities that are run on a businesslike basis. The two primary types of proprietary funds are Internal Service Funds and Enterprise Funds. When the government is essentially running a business, such as a golf course, charging the public for services they consume, an Enterprise Fund is established. Internal Service Funds are established for elements of government that are established to provide specific services to other government units such as a carpool. Fiduciary funds contain resources that the government does not actually own. Rather, they are funds that are being held for other individuals or organizations. The two major classifications of fiduciary funds are trust and agency funds. Trust funds are further subdivided into expendable and nonexpendable funds. Agency funds are those that account for money the government holds as an agent for some other organization. This money belongs to the ultimate recipient, not the government holding it. Trust funds are established when money is given to the government under the legal terms of a trust. Trusts require that the money be used in a specific manner or for specific purposes. Often some of the money in the trust must be maintained to generate future earnings. Other monies can be spent for the intended purpose. The money that can be spent is put in an Expendable fund. The money that cannot be spent is put in a Nonexpendable fund. 12-2. Cash records revenue when cash is received and expense when cash is paid. Accrual records revenue when earned and expense when assets are used to generate revenues. Modified accrual considers an item to be an expenditure when there is a legal obligation to pay for it with current resources. Thus, acquisitions do not generate assets. Revenues arise when resources are owed
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This note was uploaded on 02/22/2012 for the course FINANCE 390:300:03 taught by Professor Palmon during the Fall '10 term at Rutgers.

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Chapter 12 Solutions - 12-1 Instructors Manual for...

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