Accounting Questions For Review and Discussion

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

Expenditures are concerned with governmental funds, while expenses are concerned with proprietary funds. Expenditures are decreases in net financial resources and expenses are decreases in net economic resources. When an asset is acquired, it is generally accepted as an expenditure. When an asset is consumed it is generally accepted as an expense.

A government expects to pay its electric bill relating to its current fiscal year sometime in the following year. An official of the government requests your advice as to whether the anticipated payment should be charged as an expenditure of the current or the following year. How would you respond?

The government should record its electric bill as an encumbrance to be paid in the following year. When the encumbrance is recorded, the budgeted amount for expenditures is reduced, while a portion of unreserved fund balance is reserved for the encumbrance.

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 governmental funds. Do you agree? Explain. If budgets are prepared for capital projects funds, in what significant way may they differ from those prepared for other funds?

I disagree that budgetary control over capital projects and debt service funds in not as essential as it is for other governmental funds. While budgetary entries for projects and service funds are intended as an internal control mechanism, and do not affect year-end financial statements, it is still important to maintain budgetary control to prevent expenditures exceeding authorizations. Budgets prepared for these projects funds are significantly different from those prepared for other funds in the sense that capital project funds are stationary in nature and can often be preserved for a significantly greater number of years.

How should governments report their capital projects and debt service activities in their government-wide statements?

Governments should report their capital projects and debt service activities in their government-wide statements as long-term obligations as combined funds which includes all other governmental funds in the governmental activities column.

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