Test Bank Government and Not-for-Profit
Accounting: Concepts and Practices 6th Edition
Granof Khumawala:
Page 1
,Test Bank Government and Not-for-Profit Accounting: Concepts and
Practices 6th Edition Granof Khumawala:
Chapter 3
Issues of Budgeting and Control
TRUE/FALSE (CHAPTER 3)
1. Capital budgets focus on plans for the acquisition and construction of fixed assets.
2. The accounting cycle for most governments is two to three years, consistent with the terms of elected
officials.
3. Most budgets are prepared on a cash or modified cash basis.
4. Neither the GASB nor the FASB sets standards for budgetary accounting.
5. State and local governments must prepare their GAAP budgetary comparisons on the modified
accrual basis of accounting.
6. When budgets are integrated into a government’s accounting system, estimated revenues are debited.
7. Encumbrances and expenditures both reduce total fund balances of state and local governments.
8. Not-for-profit budgets focus first on revenues and secondarily on expenditures.
9. State and local governments’ budget-to-actual comparisons present both original and final budget
amounts.
10. Cash-basis budgets help governments focus on interperiod equity.
11. Reserve for encumbrances accounts should be closed at year-end.
12. Capital budgets concentrate on long-lived assets.
Page 2
,MULTIPLE CHOICE (CHAPTER 3)
1. Which of the following is NOT a function of a budget in the governmental environment?
a) Planning.
b) Organizing.
c) Controlling.
d) Evaluating.
2. For which of the following funds would flexible budgeting be most valuable?
a) Special revenue fund.
b) Capital projects fund.
c) Agency fund.
d) Enterprise fund.
3. Property taxes levied on the citizens of the Hill County would most appropriately be budgeted in
which of the following budgets?
a) Operating budget.
b) Capital budget.
c) Flexible budget.
d) All of the above.
4. Expenditures should be budgeted by “character.” An example of a character classification would be
a) Current expenditures.
b) Salaries.
c) Public Safety.
d) Police Department.
5. Which of the following is a primary benefit of a performance budget?
a) It facilitates control by establishing rigid spending mandates.
b) It encourages accomplishment of objectives by associating expenditures with outcomes.
c) It encourages planning by requiring management to anticipate every type of expenditure.
d) It provides decision-makers with detailed information.
6. Which branch of local (city and county) government most commonly prepares the budget?
a) Executive branch.
b) Legislative branch.
c) Judicial branch.
d) None of the above.
7. An officially adopted budget is generally called
a) An appropriation bill.
b) An operating budget.
c) A capital budget.
d) None of the above.
8. Periodic allocations of funds to departments or agencies are generally called
a) Appropriations.
b) Allotments.
c) Allocations.
d) None of the above.
Page 3
, 9. Which of the following bases of accounting has been established by GASB for use in the preparation
of the general fund budget?
a) Cash basis.
b) Modified accrual basis.
c) Accrual basis.
d) None of the above.
10. Which of the following is the best reason for preparing budgets for government entities on the cash
basis?
a) Cash basis budgeting helps to achieve interperiod equity.
b) Cash basis budgeting helps to ensure that the government will receive no more in revenues than
itis required to disburse.
c) Cash basis budgeting helps a government plan to have cash on hand to pay bills
d) Cash basis budgeting more accurately reflects the economic impact of fiscal activities.
11. Which of the following is NOT true about cash basis budgeting?
a) Cash basis budgeting permits a government to balance its budget by delaying cash disbursements.
b) Cash basis budgeting permits a government to balance its budget by advancing the recognition of
revenue.
c) Cash basis budgeting encourages interperiod equity.
d) Cash basis budgeting complicates financial accounting and reporting.
12. GASB requires that government entities present their budget-to-actual comparison data on which of
the following bases of accounting?
a) Budgetary basis.
b) Cash basis.
c) Modified accrual basis.
d) Accrual basis.
13. Which of the following is NOT a reason that legally adopted budgets may not be readily comparable
to amounts reported in the GAAP-based financial statements?
a) Differences in basis of accounting.
b) Differences in timing.
c) Differences in reporting entity.
d) Differences in recognition.
14. The City of Lakeview adopts its budget on a basis of accounting that permits outstanding purchase
commitments to be charged against the budget in the year that the goods are ordered instead of in the
year they are received. During the year the city ordered and received $4,000 of supplies (of which
$3,000 had been paid and $1,000 was unpaid) and had $500 of outstanding purchase commitments
for supplies at year-end. In the budget-to-actual comparison, the expenditures for supplies would be:
a) $3,000.
b) $3,500.
c) $4,000.
d) $4,500.
Page 4
Accounting: Concepts and Practices 6th Edition
Granof Khumawala:
Page 1
,Test Bank Government and Not-for-Profit Accounting: Concepts and
Practices 6th Edition Granof Khumawala:
Chapter 3
Issues of Budgeting and Control
TRUE/FALSE (CHAPTER 3)
1. Capital budgets focus on plans for the acquisition and construction of fixed assets.
2. The accounting cycle for most governments is two to three years, consistent with the terms of elected
officials.
3. Most budgets are prepared on a cash or modified cash basis.
4. Neither the GASB nor the FASB sets standards for budgetary accounting.
5. State and local governments must prepare their GAAP budgetary comparisons on the modified
accrual basis of accounting.
6. When budgets are integrated into a government’s accounting system, estimated revenues are debited.
7. Encumbrances and expenditures both reduce total fund balances of state and local governments.
8. Not-for-profit budgets focus first on revenues and secondarily on expenditures.
9. State and local governments’ budget-to-actual comparisons present both original and final budget
amounts.
10. Cash-basis budgets help governments focus on interperiod equity.
11. Reserve for encumbrances accounts should be closed at year-end.
12. Capital budgets concentrate on long-lived assets.
Page 2
,MULTIPLE CHOICE (CHAPTER 3)
1. Which of the following is NOT a function of a budget in the governmental environment?
a) Planning.
b) Organizing.
c) Controlling.
d) Evaluating.
2. For which of the following funds would flexible budgeting be most valuable?
a) Special revenue fund.
b) Capital projects fund.
c) Agency fund.
d) Enterprise fund.
3. Property taxes levied on the citizens of the Hill County would most appropriately be budgeted in
which of the following budgets?
a) Operating budget.
b) Capital budget.
c) Flexible budget.
d) All of the above.
4. Expenditures should be budgeted by “character.” An example of a character classification would be
a) Current expenditures.
b) Salaries.
c) Public Safety.
d) Police Department.
5. Which of the following is a primary benefit of a performance budget?
a) It facilitates control by establishing rigid spending mandates.
b) It encourages accomplishment of objectives by associating expenditures with outcomes.
c) It encourages planning by requiring management to anticipate every type of expenditure.
d) It provides decision-makers with detailed information.
6. Which branch of local (city and county) government most commonly prepares the budget?
a) Executive branch.
b) Legislative branch.
c) Judicial branch.
d) None of the above.
7. An officially adopted budget is generally called
a) An appropriation bill.
b) An operating budget.
c) A capital budget.
d) None of the above.
8. Periodic allocations of funds to departments or agencies are generally called
a) Appropriations.
b) Allotments.
c) Allocations.
d) None of the above.
Page 3
, 9. Which of the following bases of accounting has been established by GASB for use in the preparation
of the general fund budget?
a) Cash basis.
b) Modified accrual basis.
c) Accrual basis.
d) None of the above.
10. Which of the following is the best reason for preparing budgets for government entities on the cash
basis?
a) Cash basis budgeting helps to achieve interperiod equity.
b) Cash basis budgeting helps to ensure that the government will receive no more in revenues than
itis required to disburse.
c) Cash basis budgeting helps a government plan to have cash on hand to pay bills
d) Cash basis budgeting more accurately reflects the economic impact of fiscal activities.
11. Which of the following is NOT true about cash basis budgeting?
a) Cash basis budgeting permits a government to balance its budget by delaying cash disbursements.
b) Cash basis budgeting permits a government to balance its budget by advancing the recognition of
revenue.
c) Cash basis budgeting encourages interperiod equity.
d) Cash basis budgeting complicates financial accounting and reporting.
12. GASB requires that government entities present their budget-to-actual comparison data on which of
the following bases of accounting?
a) Budgetary basis.
b) Cash basis.
c) Modified accrual basis.
d) Accrual basis.
13. Which of the following is NOT a reason that legally adopted budgets may not be readily comparable
to amounts reported in the GAAP-based financial statements?
a) Differences in basis of accounting.
b) Differences in timing.
c) Differences in reporting entity.
d) Differences in recognition.
14. The City of Lakeview adopts its budget on a basis of accounting that permits outstanding purchase
commitments to be charged against the budget in the year that the goods are ordered instead of in the
year they are received. During the year the city ordered and received $4,000 of supplies (of which
$3,000 had been paid and $1,000 was unpaid) and had $500 of outstanding purchase commitments
for supplies at year-end. In the budget-to-actual comparison, the expenditures for supplies would be:
a) $3,000.
b) $3,500.
c) $4,000.
d) $4,500.
Page 4
