Question

Which of the following will require a debit to Fund Balance--Unassigned of a governmental fund when operating statement accounts are closed at the end of the year, assuming there are no other financing sources or uses?

a. Revenues are more than expenditures and encumbrances.
b. Revenues are more than expenditures.
c. Revenues are less than expenditures.
d. Revenues are less than expenditures and encumbrances.

Answer 1

The correct answer is that a debit to Fund Balance--Unassigned is required when revenues are less than expenditures in governmental fund accounting. This represents a budget shortfall or deficit situation.

Step-by-step explanation:

The student's question pertains to government fund accounting, specifically the impact of revenue and expenditure variances on Fund Balance--Unassigned at year-end closing. When operating statement accounts are closed, if revenues are less than expenditures, a debit to Fund Balance--Unassigned would be required.

This is because the Fund Balance reflects the net financial resources available to the government and would decrease in the case of a deficit. This situation mirrors the concept of an annual budget shortfall, which occurs when tax revenue is insufficient to cover government spending.