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ACC460 / ACC 460 / Week 2 DQs

ACC460 / ACC 460 / Week 2 DQs

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ACC460 / ACC 460 / Week 2 DQs
ACC460 / ACC 460 / Week 2 DQs

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Week 2 DQs

DQ1 What is meant by an in-substance defeasance, and how can a government use it to lower its interest costs? How must it recognize a gain or loss on defeasance if it accounts for the debt in a proprietary fund? How do the GASB standards pertaining to in-substance defeasances differ from those of the FASB? In-substance defeasance is the place where the government has set aside funds or assets which equal a loan amount payable. This simply means it is not required to come up with funds when a payment is payable. The government may find out the sum required right now having current value, this lets it to get the complete balance due when payments are payable at absolutely no additional cost. Additionally this financial debt is no more recorded like a debt since the liability has been satisfied even though it not paid back. I think the government may use in-substance defeasance by fully repaying an older loan by getting a new loan at a reduced rate of interest as a result decrease the sum of

On conclusion the encumbrance is reversed and entries are set up to pay cash or arranged as accounts due. DQ2 What is an encumbrance? How does an encumbrance affect expenses and expenditures? What is the impact of encumbrance accounting on a governmental budget? Explain. Since the government documents the promise of purchases as if they occur at the time of the promise it impacts expense and expenditures like a deleting of revenue. for example materials or services. In case all the services or items are not used or obtained the accounting is documented as a part amount reversed rather than the total amount. A profit or loss from this step is documented under extraordinary items under private money The main difference I think between FASB and GASB regarding in-substance defeasance is FASB needs it to still be documented as a debt. Often times the government might postpone the process by using the consumption technique rather than the purchase technique. DQ3 . This lets for a partial postponement of expenses and doesn't impact the budget just as much in the long run for unpredicted expenses. With encumbrance accounting the entries for the encumbrance are documented and earnings set aside when the promise is made. An encumbrance is promise made by the government to buy goods. The balance of the budget is impacted by expense if they weren't incorporated in the correct amount.interest payable on the older loan as well. for instance office cleaners.

As the government doesn't pay taxes the earnings are more significant for long and short term objectives and the budget and documenting of earnings may be modified by either acknowledgement of contributions or postponing acknowledgement of the offer. In case conditions apply the government or not-for-profit should satisfy the conditions such it's used for a particular objective or in a specific amount of time. It's important on the timing to document revenue since it may affect the budget and expense the government plans. Governmental organizations realize income when it's obtained as a commitment not when really obtained. That means in case a contribution is guaranteed by a company or individual and the government believes it sure that it will get the funds it then documents the income as received. DQ4 What is the purpose of the capital projects fund? What is the purpose of the debt service fund? What is inter-period equity? How does inter-period equity affect capital project and debt services funds? The main reason for capital project funds is to make certain that the capital project are purchased with funds set up only for them and to follow legal and agreement rules and .What are the basic principles of fund accounting? When do governmental entities recognize revenue? Why is timing important in recognizing revenue? The basic rules of fund accounting are decided from contributions to government and not-for-profit and in case they are constrained or conditional. A few funds are unconditional or a non-reciprocal basis meaning nothing is obtained in exchange.

I think the inter-period equity impacts capital project money by saying in case there’s a sufficient fund to pay for the venture or in case the general fund must supplement it and taxpayers need to augment the general fund to replenish it. I don't believe it would impact the debt fund even though it may be long-term liability since people have already paid the money in the fund. This lets for the management of funds to pay the liability to be in this account. Debt service funds are established if there is a long-term liability. It limits the use for the liability only and prevents a drain on any other fund account to cover shortages.limitations. The key part to keep in mind is the goal of the capita project fund is to take into account the funds for the project not to manage the capital project. Inter-period equity is when the government says that the present period earnings were capable to pay all of the expenses for the year or if a few of the payments were postponed to the subsequent year and were going to be paid by upcoming taxpayer. .

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