1. What is the distinction between expenditures and expenses as the terms are used in governmental accounting?
a. The distinction between expenditures and expenses is dependent upon GASB. Expenditures are defined as decreases in net financial resources. Expenses are defined as outflows or expirations of assets or the incurrence of liabilities during a period.
2. Using the summary table at the end of chapter 5 as well as the more specific information within the chapter, explain how and when each of these expenses/expenditures would be reported in the fund statements and the government-wide statements prepared on Dec. 31, 2012. Assume all take place within the general fund.
a) Using the accrual method your ...view middle of the document...
Your government has made payments into the plan totaling $100,000 this year.
Pension expenditure 100,000
Pension liability 100,000
This shows the payment amount into the pension fund as based on actuarial determinations not merely the amounts contributed to the plans during the year or expected to be contributed shortly thereafter.
c) In 2011 your government was involved in a law suit with a citizen. Your attorneys determined that it was probable that you would be required to pay a claim of $50,000 to that citizen when the case was settled. At the end of 2012 the case was settled and your government is required to pay a total of $75,000 to the citizen by the end of January 2013.
Claims and Judgment Expense 75,000
Liability for claims and judgments 25,000
In the next year the remaining 25,000 would be paid.
d) During 2012 your government purchased new furniture for the mayor’s office. This was appropriated in the budget for 2012 at $12,000. The actual cost paid from the general fund was $11,000.
Furniture expenditure 12,000
Accounts Payable 12,000
Furniture inventory 1,000
Fund balance – Nonspendable 1,000
e) Your government borrowed $1 million for the building of a new court building. They did this by issuing 10 year bonds at 5.5%. They sold at par and cash was received in July, 2012.
Debt service, interest – expenditure 1,000,000
Matured bonds payable 1,000,000
The interest and principle on debt is not accrued in advance of the year in which it is due. Instead it is accrued only in the period in which they are due. Since it is not due until the next year so the interest does not accrue until after the year ends.