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CPASTONE
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Joined: 12 Jul 2010
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Posted: 23 Jul 2010 at 17:25 \| IP Logged

8. CPA-04553

The budget of a governmental unit, for which the appropriations exceed the estimated revenues, was
adopted and recorded in the general ledger at the beginning of the year. During the year, expenditures
and encumbrances were less than appropriations; whereas revenues equaled estimated revenues. The
budgetary fund balance account is:
a. Credited at the beginning of the year and debited at the end of the year.
b. Credited at the beginning of the year and not changed at the end of the year.
c. Debited at the beginning of the year and credited at the end of the year.
d. Debited at the beginning of the year and not changed at the end of the year.

The answer is C but with following explaination

Choice "c" is correct. When appropriations exceed estimated revenues at the beginning of the year (per
JE #1 below), and then expenditures and encumbrances are less than appropriations (per JE #2 below)
the budgetary fund balance account is debited at the beginning of the year (per JE #1 below) and credited
at the end of the year (per JE #2 below):

DR CR
JE #1 Estimated revenues 5,000,000
Budgetary fund balance 1,000,000
Appropriations control 6,000,000
JE #2 Estimated revenues 5,000,000
Appropriations control 6,000,000
Budgetary fund balance 1,000,000

Choices "a", "b", and "d" are incorrect per journal entry explanation above.

What I understand is Budget is closed with the same amount as it was opened with. During the year activity does not influence the closing of budget, i.e closing entry/opening budgetary entries will have same amount.

Anyone pls.

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Crammer
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Posted: 23 Jul 2010 at 17:46 \| IP Logged

Come again - I don't get what you don't understand??

If the initial budget is made at the beginning of the year w. an estimate of a positive fund balance...this would mean at year end the "Fund Balance Reserve" account would hold a normal credit balance; thus DEBIT this account to initially record the budget.

So - if appropriations (amt estimated to spend) exceeds estimated revenues initial recording of the budget would be as follows:

dr. Estimated Revenues $50

dr. Fund Balance Reserve $50

cr. Appropriations ($100)

Hope that helps!

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CPASTONE
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Posted: 23 Jul 2010 at 17:57 \| IP Logged

What I am saying is opening budgetary entry and closing budgetary entry will have same amounts irrespective of activity. Now how to I know what will be actual expenditure during the year, I cannot make budgetary entry in the beginning of the year based on actual activity through out the year. Is my understanding correct.

Now the explanation given to this question confuses me because it is suggesting that Budgetary entry will be based on actual spending.

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CanadianCPA
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Posted: 23 Jul 2010 at 18:03 \| IP Logged

Whatever amounts are recorded to the budget at the beginning of the year, must be closed out at the end of the year, as you will start a new budget for the next year. Because of this you need to start fresh with all accounts being zeroed out. Actual activitiy does not affect the amounts recorded to the budget (unless you make changes to the budget during the year or something).

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CPASTONE
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Posted: 23 Jul 2010 at 18:10 \| IP Logged

Further I don't see any difference between two entries except for the order. So the solution is confusing ...

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