 Hello and welcome to the session in which you would look at CPA questions that deals with governmental accounting. Governmental accounting is an important topic on the CPA exam. Many students suffer with this topic for few reasons. One is maybe they never took a college course in governmental accounting and that's going to put you at the disadvantage when you are studying for the exam. Or if you took a college course in accounting, you did not really pay any attention because usually governmental courses are offered senior year. You already got the job or you're ready to be done or the professor did not do a good job. Whatever the reason is, farhatlectures.com can compensate for that. I don't replace your CPA review course. What I'm trying to say is this. I can explain governmental accounting to you from A to Z. I'm well known. My courses, my lectures are very helpful for helping you understand this topic. So you can keep your CPA review course. I'm not going to replace it, nor I ask you to replace it. All what I'm saying is I can be a useful addition by me explaining governmental accounting in details. Then you can take advantage of your CPA review course to review the material very quickly and effectively. So this is how I can help you in regard to governmental accounting. And your risk is one month of subscription. If you like it, you keep it. I have helped many people. If not, you can cancel, but that's your risk. Your potential gain is passing the exam. If not for anything, take a look at my website to find out how well or not well your university doing on the CPA exam. I do have resources for other accounting courses as well. Also connect with me on LinkedIn. If you haven't done so, like my recording, share it with others. Connect with me on Instagram, Facebook, Reddit and Twitter. So let's take a look at a few questions and specifically I'm going to be focusing on proprietary funds. And proprietary funds, they have enterprise fund and they have internal service fund. That's the first thing you need to know. So let's take a look at this question and see if you can answer these questions. And I'm going to tell you, the questions I'm going to go over today are very easy, straightforward and simple. So if you get any of them wrong, it means you're really lacking the basics and far-hat lectures is the way to start. All the following are enterprise fund except. Now I'm not saying that if you knew them, you're good to go. On the contrary, this is only one topic. Proprietary funds is one topic. Maybe it's one or two percent of governmental fund. There's other sections you need to be aware of and I cover all of them in details. But let's take a look at this question. All the following are enterprise fund except. Well, first you need to know what is enterprise fund is. The first thing is, well, enterprise fund is a fund that charges a fee. It's treated like a business-like activity. Well, let's start with A. Is A garbage collection? Do you think they're going to charge you for garbage collection? You bet. Actually, I'm sitting in my window right now as I'm doing this recording in my basement, but my basement is like halfway. It's not totally underground. It's halfway underground and I can see my garbage, my garbage trash outside, my garbage bin outside. And guess what? I do pay a fee for the township to collect it. So they treat it as an enterprise fund. And I tell you, all counties, all township, they charge you a fee for garbage collection. So it's an enterprise fund, swimming pool. Same thing. If you have a swimming pool, they're going to charge you an entrance fee. They're going to run it like a business. Airport. Well, Philadelphia airport, it's an airport. They'll charge you a fee. They charge a fee for the planes, the land, for airline companies to rent. It's also enterprise fund. Centralized government motor pool. Oh, here we go. Once you hear the word centralized, most likely it's not an enterprise fund. It's an internal fund. Just know this is not an enterprise fund. So we're going to see what an internal service fund is in a moment on the next question, but this is not an enterprise fund. So be careful. All enterprise fund except the central government motor pool. So activities that produce goods or services to be provided to other department or a governmental unit would be reported in which fund. Well, guess what? That is the internal service fund. Internal service fund is something like this centralized government motor pool. Simply put, you have the police department, you have the housing department, you have the department where they inspect the businesses, so on and so forth. They might have vehicles and those vehicles they need to be maintained. So what happened is the government will create a centralized government motor pool to maintain those vehicles. So those that basically a garage, a garage means to fix car to maintain the car, but only the cars of other governmental unit. So activities that produce goods here services to be provided to other department would be reported in which fund. This is where the internal service fund. Now the internal service fund and the enterprise fund, those two create the proprietary funds. So the main what we call the main fund is proprietary and under those we have the enterprise and we have the internal service fund. Those are both proprietary funds. At least if you don't know these that much then you are really weak in this topic. Now let's take a look at this question. Which method does GASB require for the enterprise fund when preparing the statement of cash flow? So for one thing this question could be which of the following statements is required for the enterprise fund and the cash flow is required, which is one of the unique things about the enterprise fund because it's run like business, business like fund versus other funds, other government fund. You have to prepare the statement of cash flows, which is something you need to know. It might be even a question by itself. Enterprise fund, there's a cash flow and you have to know how to prepare this cash flow. Again, I'm not going to keep saying this, but on farhatlectures.com I have an explanation and I have an example, two recordings that are quite comprehensive about this topic. So which method is required? That's the question. Is it the full accrual? Now this is a little bit, you could fall for this. You could fall for this. Why? Because the business, the enterprise fund uses the accrual accounting, full accrual, but that's not the method that we use for the statement of cash flow. Remember the statement of cash flow, we have the direct and indirect. So this is an accounting method modified and accrual are out. You're down to direct or indirect. You just have to memorize that you will have to use, you will have to use the appropriate method. Simply put, memorize, it's the direct method. It's the direct method. Now, you might be saying the direct method, that's unusual because most US companies use the indirect method. Yes, the government is a little bit different. They use the direct method. Simply put, memorize. If you got this question, which method they use for the enterprise fund, it will take you 10 seconds to answer. You'll have more time for the simulation. Let's take a look at this question, a characteristic of revenue bonds. So you need to know what revenue bonds are. Revenue bonds are. Well, let me tell you what revenue bonds are. Revenue bonds are issued, basically the company, not the company, the government agency, raise money, borrow money, but that money, that bond is financed through some enterprise. Let's assume the example will be a toll road. So what happened is they want to build a new road. What they do is they create this agency to build this road and they issue revenues, they bought, they issue revenue bonds, they borrow money. And what they tell the lenders is, look, we're going to pay back interest and your principal. Basically, we're going to pay back the bond from the income we're going to get from the toll booth that we installed on this road. So this is an example of revenue bond. Let's look at a, carries less risk than the general obligation bond. Well, hopefully we know the general obligation bond is. General obligation bond is backed by the taxpayer, by their ability to pay. And guess what? Now, I would say the general obligation bond will have less risk, not the revenue bond. The revenue bond is backed by quasi business enterprise. It's not really a business enterprise. It's a, nevertheless, it's a government, but all the revenue coming from that source. So the general obligation bond, it has more power to collect money because they can simply tax you. Now, if people don't use that road, the government cannot force people to use the road to pay the toll, but they can tax you and get the money for the general obligation bond. Therefore, A is incorrect. The revenue bond is generally more riskier than the general obligation bond because the general obligation bond is backed by the government. B, the characteristics of revenue bond are backed by the full faith and credit of the government in addition to the enterprise revenue. No, it's not covered by the full faith and credit of the government. It's covered by the revenue of the enterprise itself. Okay, so that's B is out. So the general bond is covered by the full faith and credit of the government. That's fine, but not the revenue bond are no longer in existence. On the contrary, on the contrary, we have them in government uses them to raise money are intended to be paid by the process of elimination. D is the answer, but are intended to be paid from the revenue of an enterprise. Exactly. That's what revenue bond is. The revenue comes from the enterprise itself. They generate the money and they pay for the fund. At the end of this recording, I'm going to remind you about farhatlectures.com. Once again, I don't intend to replace your course, but I can give you a comprehensive review of governmental accounting, whether you never took the course or you took the course, did not do well, took the course, did well, but you forgot it. Farhat Lectures is there to help you, especially if you're an international student, most likely you may even if you took governmental accounting, it may not be the US governmental accounting standard that we use. Therefore, my course will help you tremendously. Good luck, study hard, and of course, stay safe.