CMC Financial Administration & Budgets 2 — Questions and Answers
Question 1: Which budgeting approach requires each department to justify every expenditure from zero rather than using the prior year as a baseline?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Performance budgeting
- Program budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting (ZBB) requires justification for every dollar requested, with no automatic carryover from the prior year's appropriations.
Question 2: A municipality issues a $5 million general obligation bond. Who is ultimately responsible for repaying this debt?
- The bond underwriter
- The city's enterprise fund
- The full faith and credit of the municipality's taxpayers (Correct answer)
- The state government
Correct answer: The full faith and credit of the municipality's taxpayers
General obligation bonds are backed by the full faith and credit of the issuing government, meaning taxpayers are the ultimate guarantors.
Question 3: What is an encumbrance in governmental accounting?
- An overdrawn account balance
- A reservation of appropriation for an anticipated expenditure (Correct answer)
- A grant received but not yet spent
- An interest payment on outstanding debt
Correct answer: A reservation of appropriation for an anticipated expenditure
An encumbrance reserves a portion of an appropriation when a purchase order or contract is executed, before the actual expenditure occurs.
Question 4: Under GASB standards, what type of fund accounts for activities financed by user charges where the intent is to recover costs through fees?
- Special revenue fund
- Capital projects fund
- Enterprise fund (Correct answer)
- Debt service fund
Correct answer: Enterprise fund
Enterprise funds account for government activities—like water or utilities—that are financed primarily through user charges in a business-like manner.
Question 5: A city's budget shows revenues of $10M and expenditures of $11.5M with a $1.5M fund balance draw. What best describes this budget?
- A balanced budget
- A structurally balanced budget
- A deficit budget (Correct answer)
- A surplus budget
Correct answer: A deficit budget
When expenditures exceed revenues and the difference is covered by drawing down fund balance, the budget is operating at a deficit.
Question 6: Which document provides a legal appropriation authority for municipal spending during a fiscal year?
- The capital improvement plan
- The annual budget ordinance (Correct answer)
- The audit report
- The cafr
Correct answer: The annual budget ordinance
The budget ordinance, once adopted by the governing body, provides the legal authority for municipal departments to expend funds within appropriated limits.
Question 7: What does the term 'fund balance' represent in governmental fund accounting?
- The amount of cash in the treasury
- The difference between fund assets and fund liabilities (Correct answer)
- Total revenues for the fiscal year
- The unfunded pension liability
Correct answer: The difference between fund assets and fund liabilities
Fund balance is the residual equity of a governmental fund, calculated as total assets minus total liabilities and deferred inflows.
CMC Financial Administration & Budgets 2
Which budgeting approach requires each department to justify every expenditure from zero rather than using the prior year as a baseline?