Chapter 2 Fund Accounting TRUE/FALSE (CHAPTER 2) 1. Fund accounting promotes control and accountability over restricted resources. 2. The basis of accounting determines when transactions and events are recognized. 3. If an entity adopts a full accrual basis of accounting, its measurement focus will automatically be on all economic resources. 4. A government may report some of its funds on a full accrual basis. 5. Funds divide a government into functional departments. 6. General funds are established to account for resources legally restricted for specified purposes. 7. Fiduciary activities only benefit parties other than the government itself. 8. The Financial Accounting Standards Board requires all nongovernmental not-for-profit entities to use fund accounting. 9. In addition to preparing fund financial statements, governments should also prepare consolidated financial statements to provide information on the financial position and operating results of the government as a single economic entity. 10. Fiduciary activities should be reported in fund statements, but should be excluded from the government-wide statements. 11. At first glance, the government-wide statement of activities bears little resemblance to the income statement of a business. 12. In accounting for costs incurred on a major construction project in a capital projects fund, the construction outlays are reported as expenditures, not capital assets. Granof Test Bank Chapter 2 Page 1
MULTIPLE CHOICE (CHAPTER 2) 1. What is the primary reason that governmental entities use fund accounting? a) Fund accounting is required by law. b) Fund accounting is required by GAAP. c) Fund accounting promotes control and accountability over restricted resources. d) Fund accounting promotes better control over operating activities. 2. Basis of accounting determines which of the following? a) When transactions and events are recognized. b) What transactions and events will be reported. c) Where transactions and events will be reported. d) Why transactions and events will be reported. 3. A fund is a) A separate legal entity. b) A separate fiscal and accounting entity. c) A separate self-balancing set of accounts for inventory purposes. d) None of the above. 4. Which of the following funds is a fiduciary fund? a) Permanent fund. b) Agency fund. c) Capital project fund. d) Debt service fund. 5. When a governmental entity adopts a basis of accounting other than full accrual and a measurement focus that excludes long-lived assets and liabilities in its governmental fund types: a) It is in violation of the law. b) It is in violation of GAAP. c) It has reported in accordance with GAAP standards for the governmental fund financial statements required by the new GASB reporting model. d)
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