Business

Accounting questions for review and discussion

What is the distinction between expenses and expenses as the terms are used in government accounting?

Expenditures refer to government funds, while expenditures refer to own funds. Expenses are decreases in net financial resources and expenses are decreases in net financial resources. When an asset is acquired, it is generally accepted as an expense. When an asset is consumed, it is generally accepted as an expense.

A government expects to pay its electricity bill related to its current fiscal year sometime in the following year. A government official seeks your advice on whether the advance payment should be charged as an expense for the current year or the following year. How would you answer?

The government should record your electricity bill as a lien to be paid the following year. When the lien is recorded, the budgeted amount for expenses is reduced, while a portion of the unreserved fund balance is reserved for the lien.

Although many governments prepare budgets for both capital projects and debt service funds and integrate them into their accounts, budgetary control over these funds is not as essential as it is for other government funds. Do you agree? Explain. If budgets are prepared for capital project funds, in what significant ways may they differ from those prepared for other funds?

I do not agree that budget control over capital projects and debt service funds is not as essential as it is for other government funds. Although the budget entries for project and service funds are intended as an internal control mechanism and do not affect year-end financial statements, it is important to maintain budget control to prevent expenditures from exceeding authorizations. Budgets prepared for these project funds are significantly different from those prepared for other funds in that capital project funds are stationary in nature and can often be held for significantly more years.

How should governments report on their capital projects and debt service activities in their whole-of-government returns?

Governments must report their capital projects and debt service activities on their government-wide statements as long-term obligations as pooled funds that include all other government funds in the government activities column.

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