CHAPTER 3: GOVERNMENTAL OPERATING STATEMENT

ACCOUNTS; BUDGETARY ACCOUNTING

Answers to Questions
3-1.

The governmental fund financial statements report detailed current financial resources
information intended to help users assess current period fiscal accountabilitywhether
revenues were raised from authorized sources and expended for authorized purposes.
Government-wide financial statements, on the other hand, are intended to provide a broad
overview of the governmental and business-type activities for the government as a whole.
The government-wide statements focus on economic resources recognized on the accrual
basis of accountingsimilar to the focus and basis of accounting used in business entity
reporting. The governmental operating statement (statement of revenues, expenditures
and changes in fund balances) reports the inflows and outflows of current financial
resources and changes in fund balances during the fiscal period. The government-wide
operating statement (statement of activities) reports net function/program
inflows/outflows of economic resources (i.e., function/program revenues and expenses)
and the inflow of general (non-function/program) revenues. The bottom line is the
change in net position for the period.

General Problem Information: Distinguishing characteristics of fund-based and governmentwide financial statements
Learning Objective: 3-1
Topic: Classification and Reporting of Expenses and Revenues at the Government-wide Level
Blooms Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
3-2.

Using the net (expense) or revenue format recommended by GASB standards requires
reporting of expenses that are directly related to a function or program on the same line as
that function or program. Indirect expenses, those that are not directly related to a
function or program, such as interest on long-term debt, should be reported on a separate
line. It is important to correctly identify the nature of the expenses so they will be
reported on the line of the appropriate function or program, or as a separate line item.
Otherwise, incorrect amounts will be reported for particular functions/program costs, and
a financial statement user will not be able to distinguish the extent to which general
revenues are required to cover program or function-related deficits.

General Problem Information: Distinguishing direct and indirect expenses

Learning Objective: 3-1
Topic: Reporting Direct and Indirect Expenses
Blooms Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy

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Ch. 3, Answers (Contd)

3-3.

GASB recommends using a cost of programs format for the statement of activities.
Using this format, the direct expenses of each function or program are reported on the
same line as revenues related to that function or program; the difference is reported as net
(expense) revenue. General revenues are added at the bottom of the statement to report
the change in net position for the period. Using the net (expense) or revenue format
reports the extent to which each function or program is self-supporting from fees and
intergovernmental aid, or must be subsidized by general revenues of the government.

General Problem Information: Statement of activities format

Learning Objective: 3-1
Topic: Classification and Reporting of Expenses and Revenues at the Government-wide Level
Blooms Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
3-4.

a.
b.
c.
d.
e.
f.
g.

General revenues.
Program revenues.
Program revenues.
Program revenues.
Program revenues.
General revenues.
Program revenues.

General Problem Information: Program and general revenue

Learning Objective: 3-1, 3-3
Topic: Program Revenues and General Revenues
Blooms Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy
3-5.

Revenue is defined as an increase in fund financial resources other than from financing
sources such as interfund transfers and debt issue proceeds. Transfers into a fund and the
proceeds of debt issues and sales of government assets are examples of inflows classified
as other financing sources of the fund. Expenditures represent the cost to purchase a good
or service, whereas other financing uses represent transfers of financial resources from
one fund to another fund. Other financing sources have the same effect on fund balance
as revenues, while other financing uses have the same effect on fund balance as
expenditures, but they are each reported differently within the fund financial statements.
On the governmental funds statement of revenues, expenditures, and changes in fund
balances revenues are reported by fund and source, followed by expenditures reported at
the legal level of budgetary control. After a subtotal termed, Excess (deficiency) of
revenues over expenditures, a separate section of the statement reports other financing
sources and uses before arriving at a net change in fund balance.

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Ch. 3, Answers 3-5 (Contd)

General Problem Information: Revenue, Other Financing Sources, Expenditures, Other

Financing Uses
Learning Objective: 3-2, 3-3
Topic: Structure and Characteristics of the General Fund and Other Governmental Funds
Blooms Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
3-6.

a.
b.
c.
d.
e.

Organization unit
Function
Activity
Activity
Object

f.
g.
h.
i.
j.

Both character and object

Program
Function
Organization unit
Object

General Problem Information: Expenditure classifications

Learning Objective: 3-2, 3-3
Topic: Classifications of Appropriations and Expenditures
Blooms Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy
3-7.

An appropriation is an authorization by the legislative branch for administrators to incur

expenditures for specified purposes not to exceed specified amounts. Usually the
authorization is for a limited time. If the appropriation amount is allocated for spending
in specific time periods, it is termed an allotment. Expenditures and encumbrances are
both charges against appropriations. An encumbrance is a charge for an estimated
amount at the time goods are ordered; an expenditure is a charge against an appropriation
for an actual amount at the time the goods are received (modified accrual basis) or paid
(cash basis). Expenditures represent outflow of current financial resources for asset
acquisition as well as for salaries, supplies for immediate consumption, travel, and so
forthwhatever is specified in the appropriations. Expenses, in governmental
accounting as well as business accounting, are expired costs; the full cost of services or
goods consumed in providing services to citizens and others. Expenditures are recorded
in governmental fund operating statements, while expenses are found in the governmentwide financial statements as well as in the proprietary financial statements.

General Problem Information: Temporary and permanent accounts

Learning Objective: 3-3, 3-4
Topic: Reporting Budgeted and Actual Results
Blooms Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy

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Ch. 3, Answers (Contd)

3-8.

a.
b.
c.
d.

Taxes
Charges for services
Licenses and permits
Fines and forfeits

e.
f.
g.
h.

Intergovernmental revenue
Miscellaneous revenues
Charges for services
Licenses and permits

General Problem Information: Revenue classifications

Learning Objective: 3-3, 3-4
Topic: Classifications of Estimated Revenues and Revenues
Blooms Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy
3-9.

Budgetary comparison schedules (or statements) must be provided for the General Fund
and each major special revenue fund for which a budget is adopted. In order for budget
to actual comparisons to be meaningful, actual revenues and expenditures must be
reported in the same manner as the budgeted amounts. Actual revenues and expenditures
reported in the statement of revenues, expenditures, and changes in fund balances should
be on the GAAP basis. GASB standards identify several possible differences between
GAAP and budgetary financial accounting. These include basis, timing, perspective, and
entity. GASB requires reconciliation of the differences between amounts reported in the
GAAP basis operating statement and those reported in the budgetary comparison
schedule, either on the face of the budgetary comparison schedule or on a separate page.

General Problem Information: Budgetary comparison schedules/statements

Learning Objective: 3-3, 3-4
Topic: Reporting Budgeted and Actual Results
Blooms Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy
3-10. Public school systems are expected to follow the classification system specified by the
National Center for Education Statistics (NCES), as refined or mandated by a state
education oversight body. The NCES system combines the GASB expenditure
classification structure into nine categories, most of which are necessary for adequate
internal management and comparable financial reporting across schools.
The NCES classification scheme also groups revenues into numerous categories, but they
are generally classified by fund, source, and project/reporting code. The NCES
expenditure and revenue dimensions should be compared with the corresponding GASB
expenditure and revenue classifications described in this chapter. GASB standards
require that expenditures be classified by fund, function or program, organization unit,
activity, character, and object and that revenues be classified by fund and source.
Comparison of the NCES and GASB classification shows that they are generally
compatible, but the NCES classification structure is considerably more detailed to meet
the unique reporting needs of public school systems.
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Ch. 3, Answers 3-10 (Contd)

General Problem Information: Public school accounting systems

Learning Objective: 3-6
Topic: Accounting for Public School Systems
Blooms Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Easy

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