Chapter Four

What is the purpose of encumbrance accounting?

this method is used before ordering materials, supplies, or equipment to ensure a department has sufficient unexpended appropriation exists

List the steps to recording encumbrances and if an entity also incurs an expenditure.

(1) record encumbrance/outstanding account (2) update subsidiary ledger - note the different funds (3) reverse encumbrance accounts by original amount (4) record actual expenditure amount (5) reverse subsidiary ledger (6) record expenditure (7) update government wide FS

Describe the two different methods of inventory accounting and what advantages they may offer.

(1) consumption method: consistent w accrual basis of accounting, because it reports the amount of supplies consumed; must be used at government wide level and by proprietary funds; debit cash and credit inventory (2) purchase method: consistent w modified accrual accounting because it reports total expenditures for purchased supplies during the year; traditionally used by governmental funds

When are consumption and purchased methods of inventory accounting used?

they are implemented by governments using perpetual inventory systems; this means the minute something is consumed, the system/inventory is updated

What journal entries are used when using perpetual inventory systems?

General Fund/Governmental Activities - inventory of supplies + cash

What are the two different interfund transfers? Provide a scenario for each.

Intra-Activity Transactions - DO NOT need to book these on gov-wide FS; a policeman (paid thru the general fund) guarding the ISF; both within GA / Inter-Activity Transactions - DO book these on gov-wide FS; policeman (paid thru the general fund) guarding the convention center; one is GA and the other BA

What is a good rule of thumb for whether or not to book transactions on the gov-wide FS?

if the transaction is going to an external fund, outside of the government, book the transaction

What are the four types of non-exchange transactions?

derived tax revenue, imposed non-exchange revenue, government mandated, and voluntary

What are the 4 types of non-exchange transactions? Describe what each constitutes.

Derived Tax Revenue

• revenue recognized in the period which the underlying exchange occurs (ie: sale or income tax)

Imposed Non-Exchange Revenue

• recognized when there is an enforceable legal claim; in the case of property taxes, in the period for which it is levied

Government Mandated

• recognized when all the eligibility requirements have been met

• deferred revenue would be credited upon receipt of money, and then debited when revenue is recognized (ie: when all requirements are met)

• ie: “no child left behind,” grants, entitlements

Voluntary

• recognize revenue when all eligibility requirements have been met (ie: donations for panda bears)

  • ie: when you make improvements to a panda exhibit