Question

Which of the following best expresses the accounting standard regarding accounting for purchases and inventories in the General Fund?

a. They must be accounted for in a manner similar to that of commercial enterprises.
b. All purchases must be accounted for as expenditures upon acquisition.
c. Purchases may be recorded as expenditures either when acquired or consumed; if accounted for as expenditures when acquired, year-end inventories are ignored.
d. Purchases may be recorded as expenditures either when acquired or consumed; if accounted for as expenditures when acquired, year-end inventories must be reported if the amount is significant.

Answer 1

Option d is the correct accounting standard for the General Fund, where purchases are recorded as expenditures when acquired, and significant year-end inventories must be reported.

Step-by-step explanation:

The accounting standard regarding accounting for purchases and inventories in the General Fund is best expressed by the option d. Purchases may be recorded as expenditures either when acquired or consumed; if accounted for as expenditures when acquired, year-end inventories must be reported if the amount is significant. This method aligns with the accrual basis of accounting, where transactions are recognized when they occur rather than when cash is exchanged, which is important for the accurate representation of a government's financial position.

In context, inventories refer to goods that a business has produced but not yet sold, found in warehouses and on shelves. Recognizing these amounts impacts the reported expenditures and the total value of resources used or consumed within the period. This approach in governmental accounting ensures that the financial statements present a true and fair view, discouraging the problem of double counting and reflecting the real economic activity.