GAC Governmental Accounting Principles & Standards 2 — Questions and Answers
Question 1: Under GASB Statement No. 34, which financial statements are required for governmental funds?
- Balance sheet and statement of revenues, expenditures, and changes in fund balances (Correct answer)
- Statement of net position and statement of activities
- Statement of cash flows and income statement
- Statement of financial position and statement of comprehensive income
Correct answer: Balance sheet and statement of revenues, expenditures, and changes in fund balances
GASB 34 requires governmental funds to present a balance sheet and a statement of revenues, expenditures, and changes in fund balances.
Question 2: Which GASB concept establishes the hierarchy of generally accepted accounting principles for state and local governments?
- GASB Concepts Statement No. 1
- GASB Statement No. 55 (Correct answer)
- GASB Statement No. 62
- GASB Concepts Statement No. 4
Correct answer: GASB Statement No. 55
GASB Statement No. 55 establishes the GAAP hierarchy for state and local governmental entities.
Question 3: What is the measurement focus used by proprietary funds in governmental accounting?
- Current financial resources
- Economic resources (Correct answer)
- Budgetary resources
- Capital project resources
Correct answer: Economic resources
Proprietary funds use the economic resources measurement focus, recognizing all assets and liabilities.
Question 4: Under the modified accrual basis, revenues are recognized when they are:
- Earned and measurable
- Collected in cash
- Available and measurable (Correct answer)
- Budgeted and approved
Correct answer: Available and measurable
Modified accrual requires revenues to be both measurable and available (collectible within the current period or soon enough to pay current liabilities).
Question 5: Which fund type is used to account for resources that are legally restricted to expenditure for specific purposes other than debt service or capital projects?
- Capital projects fund
- Debt service fund
- Special revenue fund (Correct answer)
- Permanent fund
Correct answer: Special revenue fund
Special revenue funds account for revenues that are legally restricted or committed to specific purposes other than debt service or capital projects.
Question 6: GASB Statement No. 87 fundamentally changed accounting for which type of transaction?
- Pension obligations
- Leases (Correct answer)
- Revenue recognition
- Investment valuation
Correct answer: Leases
GASB 87 overhauled lease accounting by requiring most leases to be recognized as a right-to-use asset and a corresponding liability.
Question 7: In governmental accounting, the term 'expenditure' differs from 'expense' primarily because expenditures:
- Include only cash payments made during the period
- Are recognized when fund liabilities are incurred under the modified accrual basis (Correct answer)
- Are always larger than expenses
- Are recorded only in proprietary funds
Correct answer: Are recognized when fund liabilities are incurred under the modified accrual basis
Expenditures are recognized when fund liabilities are incurred under the modified accrual basis used by governmental funds.
GAC Governmental Accounting Principles & Standards 2
Under GASB Statement No. 34, which financial statements are required for governmental funds?