 Hello and welcome to the section. This is Professor Farhad in which we would look at CPA exam questions for the four section and specifically covering governmental accounting. This topic, governmental accounting, give students a lot of problems on the CPA exam. Oftentimes, I hear students, they fail the exam because they were not prepared for the governmental accounting section and they got a lot of questions about this topic. The reason you may get a lot of questions about this topic, because the software, the AI CPA detected that you are not prepared for a particular topic. And this is what happened when you take the exam and you're not prepared. So how can I help you? How can Farhad lectures help you overcome this problem? On farhadlectures.com you will find lectures that are specific to governmental accounting. You have a full governmental accounting course that's going to help you with your CPA preparation. It doesn't mean you don't need a CPA course. It doesn't mean you don't need Becker or Roger or Wiley or Sargent or Glein. All what you need is a supplemental course because you either never took governmental accounting in college or when you took it, the teacher did a lousy job or you did not pay attention. So that's why Farhad lectures will help you overcome this problem. As always, I would like to remind you to connect with me on LinkedIn, subscribe to my YouTube where I have 8,800 plus accounting, auditing, tax, finance, as well as Excel tutorials. If you like my lectures, please like them and share them. Look, if they benefit you, it means they might benefit other people. Why not share the wealth, connect with me on Instagram, like my Facebook. And on farhadlectures.com, you will find those additional resources, for example, for governmental accounting to be able to learn about governmental accounting from A to Z. I don't assume anything. Once you learn about governmental accounting from A to Z, then you can go to your CPA prep course and knock out those questions real easily. Let's take a look at the first question under the modified accrual accounting. If you don't know what modified accrual accounting don't even sit for the exam yet. Which of the following is not the correct regarding the general fund of a governmental unit? Now, always I'm going to say, if you don't know something, go to farhadlectures.com because they cannot explain modified accrual now in this quick session. But the point is it's something that you have to know. Okay, so which one is not correct? So be careful. It's not correct under modified accrual. Budgetary accounting is emphasized to control spending. Is this part or not part of modified accrual? This is 100% part of modified accrual, which is that that's used in the general fund of the governmental unit. We use budgetary accounting and that's something you need to be familiar with. Budgetary accounting is a topic by itself. So it is one, it is true. Therefore, A is out. Encumberance accounting is used to record purchase order. Of course it is. It's basically in a sense part of the budgetary. To make sure once we place a purchase order, we reserve this amount. We say this amount is no longer available. Yes, we do use encumberance accounting. That's another particular concept that you would learn in my governmental accounting course. Activity emphasizes flow of current financial resources. Also, current financial resources in accrual accounting. We use current financial resources. What does that mean? It means we only assume we have current assets and current liabilities. We don't have long-term assets, long-term debt. We also use that. So by the process of elimination, D is the answer and the statement of cash flow is prepared as part of the fund-based financial statement and the answer is it's not prepared. We don't prepare a cash flow statement. Therefore, it's not part of the modified accrual accounting. So you have to know all about modified accrual accounting. They can ask you about budgetary accounting, encumbrances, current financial resources, and many other topics, subtopics that falls under this concept of modified accrual accounting that is used in the general fund of governmental unit. Let's take a look at the second question. With respect to the dual objective of governmental reporting. So governmental reporting has dual objective. The idea that government agreement should be accountable to the public by demonstrating the resources allocated for a specific purpose are used for that purpose is described as what? We have two types of accountability for accounting. We have operational accountability and we have physical accountability. Here they're asking us, which one of these two accountabilities or is it both of them or neither of them deals with that we have to hold the government accountable to its public by demonstrating the resources allocated for a specific purpose. So simply put, how do we make sure that the government is spending money for the purpose that it raised the money for? So what do we do is we create fund accounting and fund accounting is what is the government? What's the idea of what's the idea of fund accounting? It's the government trying to demonstrate physical accountability. How so? Simply put, what they do is they put money in different funds. It's like different checkbooks and each checkbook is used for a particular purpose. So that's part of physical accountability. This is to demonstrate that the money that, for example, for a particular fund is used specifically for that fund and not for any other purpose. So this is the idea of physical responsibility. Physical responsibility. Like we have at that service fund, we have capital project fund. Think of them as checkbook and the idea is physical responsibility. Now, what is operational responsibility? Why A is not an answer? Why A is not an answer? A is not an answer because operational accountability deals with the financial statements objective of the government. And what are the financial statements objective? They have to be timely. They have to be consistent. They have to be comparable. This is what when we say operational accountability. So physical accountability deals with, look, physical accountability deals with the accountable to its public. So we want to show the public that we spent the money. Special revenue fund is spent on the special revenue fund purpose. Each fund, think of it the best way. Each fund has a checkbook and we only write checks against that fund from that checkbook. Let's take a look at this question. Which of the following is the most authoritative source for government accounting standard? If you get this question, you should be very happy. It should be an easy, an easy, easy question. So let's take a look at it. So simply put, what's the most authoritative source of source for government accounting standard? I'm going to give you the answer right away. GASB, GASB is statement issued by the governmental accounting standard board or better known as GASB. Now, so you're saying this shouldn't, this should be an easy, an easy question. Why would they ask me about this? Well, you have to be careful. Why, why some people might choose FASB because not for profit organization use FASB. So don't use FASB government. They have their own standard, not for profit, not for profit. They follow FASB. So they follow FASB, which is the regular accounting, regular accounting. In a sense, that's the accounting that we use, not the governmental accounting. Not the AICPA, not the GASB implementation guides. Well, if there's no GASB standard, we might go to the implementation guides, but we have statement of GASB and the government follow GASB. So just be careful. Remember, FASB is for private accounting and not for profit. Let's take a look at these questions. All funds of a state or local government unit must be categorized as one of three separate classifications. So one of three. Which of the following is not one of those classifications? So we have four, three of them will be a classification and the fourth one will not be. Well, will we classify things under proprietary fund? And the answer is yes, government or government, what we mean by government, either state or local government, they do categorize fund by proprietary fund. So proprietary fund is a category. So A is out because it is one of those. Okay, what's the proprietary fund? Sometime it's called the enterprise fund. It's like a business like fund. Okay, fiduciary fund. Do we have fiduciary fund category? And the answer is yes, we do have fiduciary funds. And you have to know all about these funds. Again, where can you learn about them? farhatlectures.com. So fiduciary fund is a second category. Governmental fund, of course, this is going to have the most. Governmental fund as well is a category, is a separate classification. So by process of elimination, permanent fund is not, is not one of those three separate classification. Actually permanent fund is part of governmental fund, just FYI. So before you go for the exam, you have to know about those three classification and those three classification will have, will have in quote, sub, sub fund. And you have to know all about those sub funds farhatlectures.com will help. Which of the following is a proprietary fund? So now, so we're looking at these and we're looking at these proprietary fiduciary government, governmental under asking us, which one of these funds is, is classified under the proprietary fund? Is it the general fund? No, the general fund. You want to know the general fund is a governmental fund. You have to know this by heart because there's a lot. You need to know about the general fund. Is it the permanent fund? I already told you the permanent fund is part of the governmental fund. Is it the enterprise fund? And the answer is yes. I told you the proprietary fund sometime is called the enterprise fund. Yes, sometimes it's called the enterprise fund. But basically the enterprise fund, it's like a business like fund. And we have, you have to know a lot about the enterprise fund. The first thing you want to know about the enterprise fund or the proprietary fund is they use a cruel accounting, something that we are familiar with. They will have long term assets. They will carry long term liabilities. Basically the balance sheet looks very similar to our balance sheet. When we say our to the accounting, regular accounting balance sheet. And we do prepare statement of cash flow for the enterprise fund. It's basically it's it look, it acts like a regular business. What is a proprietary fund or an enterprise fund? It's basically when the government charges a fee for services. For example, the city of Philadelphia operates the, the airport, the Philadelphia International Airport. It's it's an enterprise fund. It's a government, but they treat it as a business because they charge fee for air, for airlines, for customers, for cafeteria to, you know, to rent for, to rent for businesses, so on and so forth. So you want to know a lot about the enterprise fund. OK, there's a lot to know about the enterprise fund. Again, at the end of this short lesson, I'm going to remind you I'm inviting you to visit farhatlectures.com. If you want the supplement and complement your CPA course, whether you're taken Wiley, Becker, Roger, whatever course you are taking, I do have supplemental resources for those courses. CPA is a long, is a lifetime investment in your career. Take it seriously, study hard, good luck and stay safe.