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Legal Significance of Appropriation

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The Board of Alderman of the Hayville approved the Appropriations budget for its General Fund for the year ending December 31 as shown below.

General Government $500,000
Public Safety 2,800,000
Public Works 1,200,000
Health and Welfare 1,300,000
Culture and Recreation 700,000
Contributions to Retirement Fund 600,000
Total General Fund Appropriations $7,100,000

1) Explain the legal significance of an appropriation and why auditors engaged for a financial and compliance audit need to know the meaning of the term.
2) It is illegal for a governmental unit to spend money for any purpose unless a valid appropriation for that purpose exists. Does this legal rule assure good financial management for each governmental unit? Why or why not?
3) Provide the entry in General Journal form to record the budget in all necessary General Ledger and Subsidiary Ledger accounts.
4) Illustrate a form of Appropriations, Expenditures, and Encumbrances subsidiary ledger account that would provide the information needed by a government finance director to make sure legal requirements concerning appropriations are complied with.

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Solution Preview

1) Explain the legal significance of an appropriation and why auditors engaged for a financial and compliance audit need to know the meaning of the term.

An appropriation is an authorization for administrators to incur on behalf of the governmental unit liabilities in the amounts specified in the appropriation ordinance or statute, for the purposes set forth in that ordinance or statute, during the period of time specified. The auditor must attempt to ascertain that there were no material expenditures in violation of the appropriation ordinance or resolution.

2) It is illegal for a governmental unit to spend money for any purpose unless a valid appropriation for that ...

Solution Summary

Discusses a textbook situation regarding Hayville and their General Fund. Four questions are answered with ledgers where required.

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