Under pressure to balance their budgets, governments at all levels have resorted to fiscal gimmicks, such as delaying the wages and salaries of government employees from the last day of the month to their first day of the following month. In the year of the change they thereby had one fewer pay periods. How would the change affect the reported expenditures of a governmental fund under GAAP?© BrainMass Inc. brainmass.com October 25, 2018, 6:51 am ad1c9bdddf
It is true that all branches and divisions of government use various financial gimmicks and tricks to manipulate their budgets. The delaying of wages and salaries of governmental employees from the last day of the month until the first day of the following month reduces overall expenses for the department in their budget when they create forecasts and use the information for other financial decision-making purposes. By creating one less pay period than what the department is supposed to legally report, it reduces the total expenditures for the accounting period for budgeting forecasts, but does not affect GAAP reporting. Wages and salaries are reported on an accrual basis and would therefore not be affected on the reported division's expenditures under GAAP.
The proper treatment of the wages and salaries expenditure would be to report it in the year when the services were received ...
This solution explains how governments using fiscal gimmicks affects the reported expenditures of a governmental fund under GAAP.
Governmental and Not-for-profit Accounting
1 - A city library imposes a fee on patrons to access its electronic databases. The fee has been earmarked to maintain database subscriptions. However, city officials have the authority to redirect the fees to any public use.
Should this fee be accounted for in a general fund or a special revenue fund? Why? Is the collection of the fee an exchange or nonexchange transaction? Provide an appropriate rationale for your answer. Would your previous response change if the city officials were not able to redirect the library fee? Why or why not?
2 - Under a pressure to balance their budgets, governments at all levels have resorted to fiscal gimmicks, such as delaying the wages and salaries of employees from the last day of the month to the first day of the following month. In the year of the change, they reduced the number of pay periods.
How would this change affect the reported expenditures of a governmental fund under GAAP? List at least two other accounting gimmicks and describe their effect on reported revenues and expenditures. In your opinion, does the use of such gimmicks undermine GASB's reporting objectives? Explain your response.View Full Posting Details