Shared Flashcard Set


CGFM Study Guide 2, Govt Accg, Fin Rprtg: Section 1/3
2008 Edition ( Never mind the typos, the content is there.)

Additional Accounting Flashcards




1.1.1 Describe at least three ways that governments differ from organizations in the private sector. Challenge: Identify all seven ways that are identified in the text.
1) Governments are established through legal means.
2) Governments have no profit motive.
3) Governments raise revenue primarily through taxes.
4) Governments have no shareholders.
5) Governments rely on the budget process to allocate resources.
6) Governing bodies of many governments are elected by the public.
7) Governments provide many services that are not available in the private sector.
1.1.2 Describe government accountability and list all four types.
Government accountability is based on the belief that the public has a right to know and that the ultimate power belongs to the people. At a minimum, demonstrating accountability includes providing information to assist in evaluating whether the government operated withint the legal constraints that have been imposed.
1.1.3 Describe legal accountability.
-the need to comply with various laws, rules, and regulations

-the establishment of processes.
1.1.4 Describe performance accountability.
- ensuring that governments act in an efficient or economic manner.

-ensuring that goals and objectives are met.
1.1.5 Describe fiscal accountability.
- raising resources and allocating resources to accomplish objectives

- providing goods/services, public protections, and enhancing the quality of life
1.1.6 Describe operational accountability.
- ensuring that resources are used appropriately
1.1.7 Describe what the executive and legislative branches are accountable for.
-accountable to the public for operating in an effective and efficient manner, and for collecting and using resources. (performance and fiscal accountability)
-accountable to the legislative branch for using resources in accordance with mandates and fiscal restraints. (legal accountability)
- accountable to other governments using resources in accordance with grant requiremnets and restrictions (operational accountability)

-accountable to the public for raising resources and determining how those resources are to be used (fiscal accountabilty)
1.1.8 Describe interperiod equity.
- also termed intergenerational equity
- current-year revenues should be sufficient to pay for current-year services
- current-services should not be financed by future-year tax payers
1.1.9 List the five main user groups (users of the government financial reports) and describe their uses of government financial reports.

1)LEGISLATORS AND OVERSIGHT GROUPS: the available resources, operating results, and compliance with laws and regulations


 2) CITIZENS AND TAXPAYERS: operating results, and taxes and other revenue-raising efforts.


3) INVESTORS AND CREDITORS: compliance with contractual agreements related to debt issues


4) MEDIA: publicizing requests for publi input on developing priorities for the government's operations


5) PROGRAM MANAGERS: compliance with budget, restrictions of laws, public policy, program financials

1.1.10 What reports are included in general purpose external financial reports (GPEFR) and financial reports?
- GPEFR are prepared to demonstrate accountability to citizens. Typically demonstrates service efforts and accomplishments (SEA) through inclusion of Audited Financial Statements and Supplementary Information, and/or CAFR, and/or other reports.

-Financial Reporting includes internal reports, reports to grantors, offering statements when governments issue debt, project reports, and popular reports.

- "Other reports" are any other reports that are non-financial in nature.
1.1.11 List and describe the six characteristics of financial reporting. Financial reports should be:...?
- UNDERSTANDABILITY: expressed for users with a working knowledge of government financial statements

- RELIABILITY: verifiable, free from bias, comprehensive

-RELEVANCE: capable of making a difference ina user's assessment


-CONSISTENCY: if it is necessary to change a method or principle, the nature and reason for the change should be disclosed as well as the effect of the change.

-COMPARABILITY: like entitites should report information the same way
1.1.12 Briefly describe FASB, GASB, and FASAB.
-FASB: Financial Accounting Standards Board; private sector

-GASB: Governmental Accounting Standards Board. Established 1984. State and local governments are not required to comply with GASB (unless mandated by the state), though external reporting pressures from investors and creditors encourage compliance.

-FASAB: Federal Accounting Standards Advisory Board. Established 1990.
1.1.13 Describe due process in establishing accounting and financial reporting decisions. (There are five key steps.)
1)Discussion memorandum: outlines the results of research and defines the accounting and reporting issues for a particular project.

2) Invitation to Comment: respondents comment on research or a standard

3) Preliminary View: a board's initial proposal for a standard

4) Exposure Draft: format of the final standard

5) Statement: final document and date the new standard becomes effective
1.2.1 What are the main uses of cost accounting information? Six uses are identified in the text.
1) to monitor and improve program economy, efficieny, and effectiveness

2) to establish user fees

3) to prepare budgets and monitor cost controls

4) to receive cost reimbursement for grants

5) to compare costs among agencies, programs, and services

6) to make economic choice decisions
1.2.2 Define direct and indirect costs.
Direct costs can be directly attributed to a cost objective.

Indirect costs are jointly or commonly used by two or more cost objectives and cannot practically or economically be attributed to an objective.
1.2.3 What is the preferred sequence for assigning costs? (Put these three in order: Cost allocation, Direct tracing, and Cause-and-effect basis.)
1) Direct tracing
2) Cause-and-effect basis
3) Cost allocation
1.2.4 Describe the factors in determining if a cost is reasonable under OMB Circular 87. (A cost is reasonable if...?)
A cost is reasonable if it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.
1.2.5 Describe at least three of the five cost recovery objectives. (The user fee will recover...?)
- the user fee will recover only direct costs
- the user fee will recover all expenditures, including capital leases.
- the user fee will recover expenses (costs using the accrual basis of acconting, including depreciation)
- the user fee will recover expenses (including depreciation) plus an allowance for replacing equipment at a cost greater than the cost of equipment currently used.
- the user fee will recover expenses plus the amount required to pay principal on outstanding bons in lieu of depreciation.
1.3.1 Describe the three phases in the budget process.
1) Budget Preparation: the executive branch sets forth its priorities and the means by which they will be financed.

2) Legislative: the publis has the opportunity to indicate how resources should be used. Eventually the legislative branch sets forth the amounts that will be made wavailable to the executive branch in their appropriation document.

3) Budget Execution: monitoring both revenues and expenditures and making adjustments as needed.
1.3.2 Describe the five main approaches to developing a budget.
-LINE ITEM: most common approach used by governments. It sets forth the specific character or object class of spending.

-BASELINE BUDGET: projects the amount needed into the future, taking into account changes in inflation rates and demographics. Does not include changes in service delivery.

-PROGRAM BUDGET: focuses on specific functions orservices that are to be provided.

- ZERO-BASED BUDGET: requires managers to begin by assuming that the program is eliminated and requires the addition fo incremental decision unites.

-PERFORMANCE BUDGET: requires the use of performance measures as a means to determine the level of funding.
1.3.3 Describe the capital budget.
- a separate capital budget is often prepared in conjuction with the operating budget.

-capital budgets are often separated because of their high cost and multi-year nature.

- they identify long-range planning and capital improvements.
1.3.4 Simply stated, what is the budgetary accounting equation?
estimated fund balance
+ estimated revenues
= amount available for appropriation
- appropriations
= estimatated ending available fund balance
1.3.5 Rank operating, debt service, and capital expenditure from most to least discretionary.
Capital tendsd to be the most discretionary, since projects can be delayed. Debt service is the least discretionary.
1.3.6 Describe how the allottment of apportionament process can facilitate budgetary control.
The allottment or apportionment process involves didviding the appropriation into quarterly or other segments. As a result, the process tends to ensure that resources will be available throughout the year or for specific purposes.
1.4.1 What information is provided to users of financial statements by general purpose financial reports?
General purpose financial reports provide information on a government's financial position and results of operation for the reporting period.

The statement of financial position provides users information about the government's assets, liabilities, and the residula balance. The statements showing the results of operation provide information about revenues, expenses and expenditures, and other financing sources and uses.

The difference between inflows and outflow tells users if the financial position improved or deteriorated as a result of operations.
1.4.2 What is a measurement focus and what are the two measurement focuses used in governemnt accounting?
Measurement focus referes to what is being measured in the accounting process. It does not refer to when a transaction is recognized. (basis of accouting refers to timing)

The two measurement focuses used in government accouting are economoc resources and current financial resources.
1.4.3 Define the accrual basis of accouting int he governmental environment.
The accrual basis of accounting is:

The recording of the financial affects on a government of transactions and other events and circumstances that have cash consequences for the government in the periods in which the underlying transactions, events and circumstances occur, rather than only in the period in which cash is received or paid by the government.
1.4.4 Review the principles of the accrual basis of accounting in government. (Name types of transactions and identify when they are reported [when incurred or when cash is exchanged?].)
-revenue is reported when it is earned.
-tax and grant revenue is reported when due to the government
-revenue received prior to being earned or due to the government is deferred.
-liabilities are reported when incurred.
-expenses are reported when incurred.
-capital assets are consumer over their useful lives.
-prepaid expenses are assets until incurred.
-inventory is an asset until consumed.
1.4.5 Under the modified accrual basis of accounting, when are revenue and other financial resource increments recognized?
Revenue is recognized when it is measurable and available.

Measurable - the amount can be determined

Available - the resources have been recieved or will be received. The availability period can range from 60 to 360 days after the end of the current fiscal year, depending on the revenue driver.
1.4.6 Contrast the economic resources measurement focus with the current financial resources measurement focus for the acquisition of capital assets. (What statements will be affected and what is recorded?)
ERM FOCUS: Capital asset transactions affect only the statement of financial position. One asset, cash, was exchanged for another asset, capital assets. There is no impact on the operating statements. The operating statement records only depreciation.

CFRM FOCUS: Financial resources are used to acquire the asset, and the transaction is reflected on the operating statement as a capital outlay expenditure.
1.4.7 Under the accrual basis of accoutning, when is revenue recognized?
Under the accrual basis of accounting, revenue is recognized when earned or when the underlying event has taken place, regardless of when the cash is actually received.
1.4.8 Contrast long-term claim liability recognized using the ERM focus and accrual basis with the CFRM focus and modified accrual basis. (When is it recorded?)
ERM FOCUS/ACCRUAL: a liability is recorded when the underlying claim took place, regardless of when paymetns are made against the claime. Thus, the laibility for the claim incurred during the year is recognized that year and an expense is recorded on the operating statement, provided it is probable that the claim will be paid.

CFRM FOCUS/MODIFIED ACCRUAL: Liabilities are recorded in the period in which financial resources are required to make payments on the claim. No liability is established for future claim liability.
1.4.9 How are accounting systems designed to demonstrate fiscal accountability?
Accounting systems at the state and local level are designed to account for transactions by fund. Various funds are established for the purpose of carrying ot government programs. Although the fund is used for the accumulation of resources, spending does not take place until an appropriation is made.

At bothe the federal and state/local levels, accounting systems are designed to ensure that appropriations are not exceeded.
1.4.10 Which of the following is a nonexchange transaction?
a) obtaining a driver's license
b) obtaining a building permit
c) obtaining a grant from the state
d) obtaining a vendor's permit
c) A grant is a nonexchange transaction.

Nonexchange revenues are recognized when the government has established a legal claim to resources or when eligibility requirements have been met.

Exchange revenue is recognized at the time of the exchange.
1.4.11 Discuss LIFO, FIFO, and the Average Cost methods of valuing inventory. When is each method best?
During a period of rising prices, the FIFO method results in the highest value of inventory and the lowest cost of goods consumed. Most governments use FIFO and do not allow LIFO.

Average cost is used primarily for grants that are fungible, such as gas, salt, and food commodities. (One unit of a fungible good is substantially similar to another unit of the same good.)
1.4.12 What are the two criteria for determining a federal reporting entity?
1) Inclusion in the federal budget section entitled, "Federal Programs by Agency and Account"

2) Other indicative criteria, such as:
- the entity exercises sovereign power to carry out federal functions
- the entity is owned by the federal government

NOTE: FASAB has determined that the Federal Reserve, government-sponsored enterprises, and bailout entities are not part of the federal government.
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