ACCOUNTING 5336
Ch4 – Reading Questions – Spring 2012
Recognizing Revenues in Governmental Funds

Ch 4a (pp 130-151)

1. The current model for governmental reporting requires two sets of financial statements. What are they? What key reporting objective does each meet? What basis of accounting does each use? (p131)

Government-wide statements: full accrual and consolidate all funds. Indicating the extent to which the entity achieved interperiod equity (Demonstrates whether the entity’s current-year revenues were sufficient to pay for the current year’s services.)

Fund statements: governmental funds on modified accrual basis. Demonstrating whether the entity obtained and used its resources in accordance with its legally adopted budget.

2. Why didn’t GASB just require governments to use their budgetary basis for financial reporting? (p132)

Because retaining the modified accrual basis ensures that all governments report on the same basis and thereby facilitates comparisons among entities. Comparisons would have been difficult if each reported on its own particular budget basis.

3. Current financial resources (the measurement focus used with modified accrual) can be described as “expendable financial resources”. What does this mean? (132-3)

This is cash and other items that can be expected to be transformed into cash in the normal course of operations (less current liabilities). Other items include investments and receivables but not capital assets

Why are inventories and prepaids also included on the fund-level balance sheet?

These assets will not ordinarily be transformed into cash (inventory will be consumed and not sold for cash), but they generally will result in short-term cash savings in that the entity will not have to expend additional cash to acquire them.

4. To be recognized under the