CPA Governmental & Not-for-Profit Accounting 1 — Questions and Answers
Question 1: Which accounting standard-setting body establishes accounting and financial reporting standards for state and local governments in the United States?
- FASB
- GASB (Correct answer)
- AICPA
- SEC
Correct answer: GASB
The Governmental Accounting Standards Board (GASB) is the authoritative standard-setter for state and local government financial reporting in the U.S.
Question 2: Under GASB standards, what is the primary measurement focus for governmental fund financial statements?
- Economic resources
- Current financial resources (Correct answer)
- Net assets
- Cash flows
Correct answer: Current financial resources
Governmental fund statements use the current financial resources measurement focus, reporting only current assets and current liabilities.
Question 3: Which basis of accounting is used for governmental fund financial statements?
- Full accrual basis
- Cash basis
- Modified accrual basis (Correct answer)
- Budgetary basis
Correct answer: Modified accrual basis
Governmental fund statements use the modified accrual basis, recognizing revenues when measurable and available, and expenditures when the related liability is incurred.
Question 4: A city receives a grant that can only be used for road repairs. How should this grant be reported in governmental fund accounting?
- General Fund revenue
- Special Revenue Fund revenue (Correct answer)
- Debt Service Fund revenue
- Capital Projects Fund revenue
Correct answer: Special Revenue Fund revenue
Restricted grants designated for a specific purpose are reported in a Special Revenue Fund, which accounts for resources legally restricted to particular purposes.
Question 5: Under GASB Statement No. 34, government-wide financial statements are presented using which basis of accounting?
- Modified accrual
- Cash basis
- Full accrual (Correct answer)
- Budgetary basis
Correct answer: Full accrual
GASB 34 requires government-wide statements to use the full accrual basis and economic resources measurement focus, similar to business-type accounting.
Question 6: Which of the following is classified as a proprietary fund type under GASB standards?
- General Fund
- Special Revenue Fund
- Enterprise Fund (Correct answer)
- Permanent Fund
Correct answer: Enterprise Fund
Enterprise Funds are proprietary funds used to account for activities financed primarily through user charges, similar to business operations.
Question 7: In a not-for-profit organization following FASB ASC 958, net assets are classified into which two categories?
- Restricted and unrestricted
- Permanent and temporary
- With donor restrictions and without donor restrictions (Correct answer)
- Operating and capital
Correct answer: With donor restrictions and without donor restrictions
ASU 2016-14 (FASB ASC 958) simplified net asset classification to two categories: with donor restrictions and without donor restrictions.
CPA Governmental & Not-for-Profit Accounting 1
Which accounting standard-setting body establishes accounting and financial reporting standards for state and local governments in the United States?