Chapter 3

Modified Accrual Accounting: Including

the Role of Fund Balances and Budgetary Authority
Multiple Choice

Exercise 1: For each of the following, select the letter corresponding with the best answer.

1. Which of the following in the acquisition of goods and services occurs first?
a. Expenditure
b. Encumbrance
c. Appropriation
d. Cash payment

2. Which of the following is true regarding the term expenditures:

a. Expenditures are decreases in fund financial resources
other than through interfund transfers.
b. Expenditures may be for current, capital outlay, or debt
service purposes.
c. Expenditures are generally recognized when goods and
services are received.
d. All of the above.

3. Which of the following is the most constrained category of spendable funds?

a. Constricted.
b. Assigned.
c. Committed.
d. Unassigned.
e. Reserved.

4. Which of the following is true regarding governmental budgetary reporting?

a. Governments must prepare budget-actual statements for all funds.
b. The budget-actual statement for the general and special
revenue funds must be one of the basic financial
statements.
c. The budget-actual schedule(or statement) must provide
information on the original as well as the revised budget.
d. All of the above.

5. Which of the following would be an example of expenditure reporting by character?

a. Public safety
b. Salaries
c. Current
d. Fire protection
6. The Board of Commissioners of the City of Belvedire’s adopted budget for the current
fiscal year, indicated estimated revenues of $1,000,000 and appropriations of $970,000.
When the budget is formally integrated into the accounting records, what is the required
journal entry?
Debits Credits
a. Memorandum entry only
b. Estimated Revenue Control 1,000,000
Appropriations Control 970,000
Budgetary Fund Balance 30,000
c. Appropriations Control 1,000,000
Estimated Revenue Control 970,000
Budgetary Fund Balance 30,000
d. Revenues Receivable 1,000,000
Estimated Expenditures 970,000
General Fund Balance 30,000

7. When a purchase order is issued for the General Fund, which of the following entries
would be prepared, assuming the purchase order amount is $500?

Debits Credits
a. Encumbrances Control 500
Budgetary Fund Balance Reserved
for Encumbrances 500
b. Expenditures Control 500
Vouchers Payable 500
c. Memorandum entry only
d. Budgetary Fund Balance Reserved
for Encumbrances 500
Encumbrances Control 500

8. Assume the following facts for the City of Evanston Police Department for the month of
July, the first month of the fiscal year: The appropriation for the year was passed,
amounting to $10,000,000. Purchase orders and contracts were issued in the amount of
$300,000. Of the purchase orders already mentions, $250,000 were filed with invoices
amounting to $260,000. Salaries, not encumbered, amounted to $500,000. What is the
available balance at the end of the fiscal year:
a. $9,200,000
b. $9,240,000
c. $9,190,000
d. $9,210,000

9. Which of the following refers to an actual cost rather than an estimate?

a. Expenditure
b. Appropriation
c. Budget
d. Encumbrance
10. The Encumbrances Control account would be decreased when:
a. Purchase orders are issued.
b. Goods, related to purchase orders are received.
c. Payment is made for goods received.
d. Budget revisions are made, decreasing Appropriations.

Exercise 2: For each of the following, select the letter corresponding with the best answer:

1. The fire department of a certain city received an appropriation in the amount of

$13,000,000 for the fiscal year. During the month of ended July, the following
transactions occurred: (a) purchase orders were issued in the amount of $600,000; (b)
purchase orders related to (a) above, were filled in the amount of $585,000; the related
invoice amount was $587,000; invoices were paid in the amount of $540,000; (c) salaries
were accrued in the amount of $630,000. The balance available for the fire department
after the completion of these transactions is
a. $11,770,000
b. $11,768,000
c. $11,830,000
d. $11,783,000

2. Debt issue proceeds received by governmental fund would be recorded as:

a. A revenue.
b. Another financial source.
c. A liability.
d. None of the above.

3. An example of an expenditure classified by object would be:

a. Police Department
b. Public Safety
c. Current
d. Salaries

4. A certain government passed its budget for the fiscal year. Estimated Revenues amounted
to $12,000,000; Appropriations amounted to $11,300,000; Estimated Other Financing
Sources amounted to $600,000; and Estimated Other Financing Uses amounted to
$700,000. In the budgetary entry, Budgetary Fund Balance would be:
a. Debited for $600,000.
b. Debited for $800,000.
c. Credited for $600,000.
d. Credited for $800,000.
5. When goods, which had previously been encumbered, are received, and the invoice
amount is different from the purchase order amount:
a. Budgetary Fund Balance-Reserved for Encumbrances would be credited for the
purchase order amount.
b. Encumbrances Control would be debited for the purchase order amount.
c. Encumbrances Control would be credited for the invoice amount.
d. Budgetary Fund Balance-Reserved for Encumbrances would be debited for the
purchase order amount.

6. Which of the following is true regarding the Budgetary Comparison Schedule:

a. Columns are required for the original budget, the revised budget, and the actual
amount.
b. The Budgetary Comparison Schedule is presented as a part of Required
Supplementary Information.
c. The Budgetary Comparison Schedule may be presented as one of the basic financial
statements.
d. All of the above.

7. Which of the following is true regarding the Budgetary Comparison Schedule?

a. A variance column may be presented but is not required.
b. The Schedule is required for the General Fund and all major special revenue funds that
have a legally adopted annual budget.
c. The actual amounts presented must be on the budgetary basis, even if the budgetary
basis is different that GAAP.
d. All of the above.

8. If Budgetary Fund Balance is debited in the process of recording a budget in the General
Fund, it can be assumed that:
a. Estimated Revenues and Other Financing Sources exceeded Appropriations and Other
Financing Uses.
b. Estimated Revenues and Other Financing Sources exceeded actual Revenues and
Other Financing Sources.
c. Appropriations and Estimated Other Financing Uses exceeded Estimated Revenues
and Other Financing Sources.
d. Revenues and Other Financing Sources exceeded Estimated Revenues and Estimated
Other Financing Sources.

9. Under accrual accounting, property tax revenue, net of estimated uncollectibles is

recognized:
a. For no more than is collected during the fiscal year.
b. For no more than is collected during the fiscal year plus the amount collected during
the first 60 days of the next fiscal year.
c. Immediately upon the levy, regardless of the date.
d. In the year for which the tax is levied.
10. Under modified accrual accounting, an expenditure is recognized:
a. When an appropriation is enacted.
b. When a purchase order is issued.
c. When goods or services are received.
d. When payment is made for the goods or services.