GAFRB Exam Preparation Material | Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB)

Explanation:
Governmental fund financial statements (such as the General Fund, Special Revenue Funds, Capital Projects Funds) use the current financial resources measurement focus and the modified accrual basis of accounting. This focus reports inflows and outflows of current financial resources and excludes long-term assets and liabilities.
This differs from the government-wide financial statements, which use the economic resources measurement focus and full accrual basis.
Relevant
Reference: GASB Statement No. 34 C Basic Financial Statements
GASB Codification Section 1600 C Fund Accounting
GFOA Fund Accounting Guidance
Answer C. current financial resources

Explanation:
The agency uses accrual accounting, meaning bad debt expense should be recognized based on the revenue earned, not the cash collected. The historical bad debt rate is 5%.
Fee revenue recorded = $1.1 million
Bad debt expense = 5% × $1,100,000 = $55,000
This matches the standard accounting treatment under FASAB SFFAS No. 1, where the expense is estimated and recognized in the same period as the related revenue.
Relevant
Reference: FASAB SFFAS No. 1 C Accounting for Selected Assets and Liabilities
GAAP treatment for allowance for doubtful accounts
Treasury Financial Manual C Accounts Receivable Accounting
Answer C. $55,000

Explanation:
When a federal entity pays off a payable:
Budgetary accounting moves the status of the obligation from unpaid to paid
Proprietary accounting reduces the payable and cash (Fund Balance with Treasury)
The correct journal entry is:
Budgetary:
Debit Delivered Orders C Obligations, Unpaid
Credit Delivered Orders C Obligations, Paid
Proprietary:
Debit Accounts Payable
Credit Fund Balance with Treasury
This reflects the transition from an unpaid liability to a disbursed payment, complying with federal financial reporting.
Relevant
Reference: Treasury Financial Manual (TFM) Vol. I, Part 2, Chapter 4700
FASAB SFFAS No. 1 and No. 7 C Accounting for Liabilities and Budgetary Resources
USSGL (U.S. Standard General Ledger) C Posting Logic for Obligation Transactions
Answer D. Debit Delivered Orders C Obligations, Unpaid; Credit Delivered Orders C Obligations, Paid; Debit Accounts Payable; Credit Fund Balance with Treasury

Explanation:
In the reconciliation from the governmental fund financial statements to the government-wide Statement of Activities, capital outlays that were treated as expenditures in the governmental funds are added back. This is because the government-wide financial statements use full accrual accounting, where capital outlays are capitalized as assets and not expensed.
Thus, the $2 million in capital outlays would be added back to adjust net change in fund balances to arrive at the change in net position for governmental activities.
Relevant
Reference: GASB Statement No. 34 C Reporting Capital Assets and Reconciliation
GASB Codification Section 2200 C Government-wide Financial Reporting
GFOA Annual Comprehensive Financial Report Guidance
Answer C. $2 million in capital outlays is added

Explanation:
Comprehensive Detailed
According to FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 1, an accounts receivable should be recognized when a legal claim to cash exists ― that is, when the federal agency has provided goods or services or an enforceable claim to payment has arisen.
This typically occurs after performance has occurred, not merely when an agreement or order is received.
Relevant
Reference: FASAB SFFAS No. 1 C Accounting for Selected Assets and Liabilities
Treasury Financial Manual (TFM) C Receivables Accounting
OMB Circular A-136 C Financial Reporting Requirements
Answer A. claims to cash against other entities are established