State and local government
The Modified Accrual Read
Governmental funds measure current financial resources: recognize revenue when measurable and available, and expenditures when incurred.
How the exam words it
- -The stem asks which basis of accounting and measurement focus a governmental fund uses.
- -It gives a property tax levy with collections and a 60-day window and asks how much revenue to recognize.
- -It describes a capital purchase or bond issuance in a fund and asks how it is recorded.
- -It describes a grant or a tax and asks when the revenue is recognized or how it is classified.
The playbook
- 1Apply modified accrual and the current financial resources focus: governmental funds record no capital assets, no long-term debt, and no depreciation.
- 2Recognize revenue only when measurable and available, treating property tax collected within about 60 days as available and deferring the rest as a deferred inflow.
- 3Record a capital purchase as a capital-outlay expenditure in full, and record bond proceeds as an other financing source rather than a liability.
- 4Classify nonexchange revenue under GASB 33: derived taxes when the exchange occurs, imposed taxes in the period levied, and grants when eligibility requirements are met.
The trap
Recording depreciation in a governmental fund, or recognizing tax that is measurable but not available. Available generally means collected within 60 days of year-end.
How the exam varies it
The same pattern, re-skinned along these axes:
Basis of accounting versus a revenue-recognition computationExpenditure recognition versus other financing sourcesDerived versus imposed versus voluntary nonexchange revenue
Drill this pattern
8 questions of The Modified Accrual Read from across the AUD topics. Clear it by getting 5 right with a streak of 3.