Ch 5: General and Special Revenues Fund

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Questions and Answers

What characterizes a committed fund balance?

Amounts constrained as to use due to formal actions of the highest decision-making authority (correct)

Amounts available for any legal purpose

Amounts constrained by external restrictions imposed by creditors

Amounts designated for specific purposes by any government entity

Which of the following best describes an assigned fund balance?

Amounts that remain unrestricted for any purpose

Amounts permanently restricted by law or regulation

Amounts allocated for specific purposes as expressed by a governing body (correct)

Amounts that do not meet criteria for committed fund balance

What are unassigned fund balances primarily used for?

Amounts available for spending for any legal purpose (correct)

Amounts primarily restricted by creditors

Amounts designated to cover future liabilities

Amounts strictly allocated for specific legal obligations

Which situation correctly describes a restriction on fund balances?

An amount limited by external factors such as laws or creditor agreements Signup and view all the answers

How should amounts encumbered from unassigned resources be classified at the end of the fiscal year?

They should be classified as assigned fund balance Signup and view all the answers

What is the correct entry for acquiring a capital asset in a governmental-type fund?

Debit Expenditures—capital outlay, Credit Cash Signup and view all the answers

How is inventory accounted for under the consumption method when it is used?

Debit Expenditures—supplies, Credit Supplies inventory Signup and view all the answers

In the purchases method, what is the first entry when purchasing inventory?

Debit Expenditures—supplies, Credit Cash Signup and view all the answers

What is the treatment of year-end inventory in the purchases method if a material amount exists?

Debit Supplies inventory, Credit Nonspendable fund balance Signup and view all the answers

What entry is made when a capital asset is sold for cash?

Debit Cash, Credit Other financing sources—proceeds from sale of general capital assets Signup and view all the answers

What entry should be made if more discounts are taken than originally recorded in the allowance for property taxes?

Debit Revenues Signup and view all the answers

When is interest on delinquent property taxes recognized as revenue?

When cash is received Signup and view all the answers

What should be recorded alongside interest and penalties if they are recorded for delinquent taxes?

Allowance for uncollectible interest Signup and view all the answers

What does a property tax lien allow a government to do?

Prevent sale of property to satisfy tax claims Signup and view all the answers

In a property tax sale, what happens to the proceeds after the government recovers the owed amount?

They are returned to the former property owner Signup and view all the answers

Derived tax revenues are recognized when which condition is met?

Transaction has occurred and resources are available Signup and view all the answers

Which of the following describes the recognition of assets and revenues in derived tax revenues?

Assets recognized upon exchange, revenues when resources are available Signup and view all the answers

What is typically not recorded by governments regarding interest on delinquent property taxes?

Receivable for interest Signup and view all the answers

What is recorded as a credit when a portion of sales taxes are not 'available'?

Deferred inflow of resources—sales taxes Signup and view all the answers

In the context of income tax revenues, which account must be debited when accruing income taxes for the current fiscal year?

Income taxes receivable Signup and view all the answers

Which condition must be met to recognize revenue for intergovernmental grants?

Resources must be available and eligibility requirements met Signup and view all the answers

Which journal entry is required for expected income tax refunds during the availability period?

Debit Income tax refunds payable and Credit Revenues—income taxes Signup and view all the answers

How should additional anticipated income tax receipts from late filers be recorded when they are not 'available'?

Debit Income taxes receivable and Credit Deferred inflow of resources—income taxes Signup and view all the answers

Which type of grants requires allowable costs to be incurred by the government as part of the eligibility requirements?

Expenditure-driven grants Signup and view all the answers

What happens if a government expects to make tax refunds during the availability period?

Additional entries must be recorded to account for potential refunds Signup and view all the answers

What is the primary purpose of time requirements in intergovernmental grants?

Establish periods for resource use or when use may begin Signup and view all the answers

What are revenues defined as in the context of financial reporting?

Inflows of financial resources available to finance expenditures Signup and view all the answers

What constitutes expenditures in financial statements?

Outflows that are due and payable in the current period Signup and view all the answers

Which of the following is an example of 'other financing sources or uses'?

Proceeds from the issuance of debt Signup and view all the answers

What does the nonspendable fund balance indicate?

Amounts legally required to be maintained intact Signup and view all the answers

What is a primary characteristic of a restricted fund balance?

Amounts to be used only for specified purposes Signup and view all the answers

Which of the following best describes interfund transfers?

Movements of funds between different funds within an organization Signup and view all the answers

In the statement of revenues and expenditures, what are capital outlays considered?

Outflows for acquiring or improving long-term assets Signup and view all the answers

What is the effect of proceeds from the sale of capital assets on the fund balance?

Increases in assets that do not affect net assets overall Signup and view all the answers

Study Notes

Revenue Recognition: Property Taxes

Debit Revenues if more discounts are taken than initially recorded in the Allowance.
Credit Revenues if fewer discounts are taken than initially recorded in the Allowance.

Interest on Delinquent Property Taxes

Recognize as revenue when available, usually upon cash receipt.
Governments often don't record receivables for interest on delinquent taxes if immaterial.
If recorded, an Allowance for uncollectible interest and penalties is also needed.

Tax Liens

A government's legal right to prevent property sale to satisfy a tax claim.
Recording a tax lien involves debiting Tax liens receivable, crediting Property taxes receivable—delinquent, and crediting Interest and penalties receivable.

Property Tax Sale

If the lien isn't satisfied, the government may seize and sell the property.
The government receives the amount owed plus sale costs; the remainder goes to the former owner.

Derived Tax Revenues

Taxes "derived" by governments by applying tax rates to underlying exchange transactions (e.g., sales taxes, income taxes, taxes on specific items).
Assets (cash or receivables) are recognized when an exchange occurs.
Revenues (net of refunds and uncollectible amounts) are recognized when the exchange occurs AND resources are available (collected in the current period or soon enough to pay current liabilities). The "available" timeframe may exceed the 60-day rule for property taxes.

Sales Tax Revenues and Receivables

Asset and revenue recognition involves debiting Cash or Sales taxes receivable and crediting Revenues—sales taxes.
If some sales taxes aren't "available," credit Deferred inflow of resources—sales taxes for the unavailable amount.

Income Tax Revenues and Receivables

Similar accounting rules to sales taxes, but with more estimates due to potential delays in payment and the possibility of tax refunds (requiring an Income tax refunds payable account).

Recording Income Tax Transactions

Accrue income taxes for the current fiscal year based on actual receipts in the first month of the next fiscal year (debit Income taxes receivable, credit Revenues—income taxes).
Account for additional expected receipts and refunds during the "availability" period (adjusting Income taxes receivable, Income tax refunds payable, and Revenues—income taxes).
Record additional expected receipts that aren't "available" (debit Income taxes receivable, credit Deferred inflow of resources—income taxes).

Intergovernmental Grants

Revenue recognition depends on meeting eligibility requirements AND resource availability.
Grants may have time requirements (specifying usage periods) and purpose restrictions (specifying allowable activities).

Intergovernmental Grants: Expenditure-Driven Grants

Reimbursement-based grants require incurring allowable costs to meet eligibility requirements. Example provided: Journal entries illustrating interfund transfers related to expenditure-driven grants.

Acquiring and Disposing of Capital Assets

Acquiring a capital asset: Debit Expenditures—capital outlay, Credit Cash or Vouchers payable.
Selling a capital asset: Debit Cash, Credit Other financing sources—proceeds from sale of general capital assets.

Inventories: Accounting Methods

Consumption method: Inventory treated as a financial asset. Purchase: Debit Supplies inventory, Credit Cash or Vouchers payable. Use: Debit Expenditures—supplies, Credit Supplies inventory.
Purchases method: Inventory not treated as a financial asset. Purchase: Debit Expenditures—supplies, Credit Cash or Vouchers payable. Year-end closing entry (if material): Debit Supplies inventory, Credit Nonspendable fund balance.

Statement of Revenues, Expenditures, and Changes in Fund Balance

Revenues: Inflows of financial resources available to finance current-period expenditures, generally increasing net assets.
Expenditures: Outflows of financial resources due and payable in the current period or shortly thereafter, for operations, capital outlays, or debt service.
Other financing sources or uses: Increases or decreases in fund assets that generally don't affect the entity's net assets (e.g., interfund transfers, debt proceeds, proceeds from asset sales).

Balance Sheet & Fund Balance

The balance sheet presents the financial position of a governmental fund.
Fund balance classifications: Nonspendable, Restricted, Committed, Assigned, Unassigned.

Nonspendable Fund Balance

Amounts not available for appropriation because they are not in spendable form (inventory, prepaid items, long-term loans) or legally required to remain intact (e.g., corpus of a Permanent Fund).

Restricted Fund Balance

Amounts usable only for specified purposes due to constitutional provisions, enabling legislation, or contractual provisions. Restrictions may be externally imposed.

Committed Fund Balance

Amounts constrained by formal action of the government's highest decision-making authority.

Assigned Fund Balance

Amounts constrained by the government's intent to spend resources for specific purposes, expressed by the governing body or a designated entity. For funds other than the General Fund, amounts not classified as nonspendable, restricted, or committed are considered assigned. In the General Fund, encumbered amounts from unassigned resources are also classified as Assigned.

Unassigned Fund Balance

Amounts available for any legal purpose; the residual classification for the General Fund.

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Description

This quiz covers the principles of revenue recognition related to property taxes, including discounts, delinquent interests, and tax liens. You'll explore how these elements impact government accounting and reporting. Dive into the complexities of recording and recognizing tax revenues in compliance with standard practices.