AICPA Governmental & Not-for-Profit Accounting 1 — Questions and Answers
Question 1: Which basis of accounting is used for governmental fund financial statements under GASB standards?
- Full accrual basis
- Cash basis
- Modified accrual basis (Correct answer)
- Tax basis
Correct answer: Modified accrual basis
Governmental funds use the modified accrual basis, recognizing revenues when measurable and available, and expenditures when incurred.
Question 2: Which fund type would a state government use to account for resources legally restricted to pay long-term debt principal and interest?
- Special revenue fund
- Capital projects fund
- Debt service fund (Correct answer)
- Permanent fund
Correct answer: Debt service fund
A debt service fund accounts for resources accumulated for and the payment of general long-term debt principal and interest.
Question 3: What does GASB stand for?
- Government Accounting Standards Bureau
- Governmental Accounting Standards Board (Correct answer)
- General Accounting and Standards Bureau
- Government Auditing and Standards Board
Correct answer: Governmental Accounting Standards Board
GASB — the Governmental Accounting Standards Board — establishes accounting and financial reporting standards for U.S. state and local governments.
Question 4: Which financial statement is unique to governmental fund accounting and reconciles fund balances to government-wide net position?
- Statement of Net Position
- Balance Sheet with reconciliation (Correct answer)
- Statement of Cash Flows
- Statement of Activities
Correct answer: Balance Sheet with reconciliation
The governmental fund Balance Sheet includes a reconciliation schedule that bridges the fund balance to the government-wide net position reported under full accrual.
Question 5: Under GASB, the general fund is best described as:
- A fund for restricted operating revenues
- The chief operating fund of a government (Correct answer)
- A fund used solely for capital acquisitions
- A trust fund for pension obligations
Correct answer: The chief operating fund of a government
The general fund accounts for all financial resources not required to be accounted for in another fund and is the primary operating fund.
Question 6: GASB Statement No. 34 requires governments to report two distinct perspectives in their basic financial statements. These are:
- Federal perspective and state perspective
- Fund financial statements and government-wide financial statements (Correct answer)
- Proprietary statements and fiduciary statements
- Operating budget and capital budget
Correct answer: Fund financial statements and government-wide financial statements
GASB 34 established the dual-perspective model: fund financial statements (showing individual funds) and government-wide statements (showing the entity as a whole on a full accrual basis).
Question 7: Which of the following is classified as a fiduciary fund under GASB standards?
- Internal service fund
- Capital projects fund
- Pension trust fund (Correct answer)
- Enterprise fund
Correct answer: Pension trust fund
Pension trust funds are fiduciary funds because the government holds assets in trust for the benefit of plan members, not for its own programs.
AICPA Governmental & Not-for-Profit Accounting 1
Which basis of accounting is used for governmental fund financial statements under GASB standards?