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You have recently graduated from an accounting program and been hired for a position in the administrative office of the City of East Chester. The city has just elected a new mayor who was a local football hero and is fond of saying he is “not good with numbers.” However, he is interested in learning about the city’s financial situation because he made a lot of expensive campaign promises and needs to figure out whether he can keep them.
He has been given four statements – the government-wide statement of net assets, the government-wide statement of activities, the balance sheet for the General Fund, and the statement of revenues, expenditures and changes in the fund balances of the General Fund. He needs help with the following:
1. He has noticed that sometimes the expenses on one statement equal the expenditures on another. What is the difference between expenses and expenditures and why do they (only) sometimes equal each other?
2. He has also noticed that assets minus liabilities equals net assets on one statement but assets minus liabilities equals the fund balance on the other. How can this be? Shouldn’t they be the same? What is the difference between the two? Please explain.
3. The total fund balance seems to have increased in the past year, but total net assets decreased. How could this happen?
4. He decides he doesn’t want to look at all four statements and wants to know which one he should look at to figure out how much he can spend on his campaign promises. What is your response?
Note: The mayor has never taken an accounting class and does not understand journal entries, so please do not include any in your memo.
