 governmental accounting questions that could appear on the CPA exam or in your governmental accounting and not for-profit course. These concepts are very important for your success, whether you are taking a governmental accounting or a CPA exam. Now, if you are an accounting student or a CPA candidate, especially if you are a CPA candidate, I strongly suggest you check out my website farhatlectures.com. No, I don't replace your Becker, your Roger, your CPA review course, Glyme, Wiley, or any other course you are taking. However, I can be a useful addition to your CPA course. I can add 10 to 15 points to your CPA exam. How so? Well, especially in governmental accounting, most colleges don't offer the course or a lot of colleges don't offer this course. If they offer this course, it's not thought well. So what I do in my governmental accounting course, I will teach you the material from scratch. I don't assume any base knowledge. 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If it benefits you, it means it might benefit other people. Connect with me on Instagram and Facebook. The first question is the modified accrual basis. This is an important concept in governmental accounting. Is a distinct system? It is a distinct system of accounting that we have four options. How unique is the modified accrual basis? You need to understand what is modified accrual basis? Well, let's start with A. It's easy to eliminate choices. I want you to think of the questions from the question writer. The hardest thing for the question writer, and believe me, I wrote questions for a test bank, the hardest thing is to choose the wrong answers, is to put the wrong answers in the question. It's easy to put the right answer because you know what the right answer is, then you have to choose the wrong answer. So the writer of the question will have to make up some wrong answers. So if you understand the concept, it's easy to find out those wrong answers. So let's see. First of all, it says in the question itself, it's a distinct system. Well, A, is it equivalent to cash basis? Well, if it's equivalent to cash basis, we would have just called it cash basis. Why do we want to call it modified accrual? Therefore, A is out. It's not cash basis. Records expenditure and fund balances. Well, what do we know about modified accrual? Well, we know that in modified accrual, we do use the word expenditure, or you need to know this. We don't use the word expenses. So that's the first thing you want to know about modified accrual. If we look at D, it says record expenses. I will take D out immediately. Why? Because in modified accrual, you need to understand this by heart. You don't have expenses. Therefore, D is out. And it says D. It says record expenses and revenues the same as accrual. If it's the same, why is it distinct? So D is out. So notice we're down to 50-50. Record expenditure and fund balances. Yes, we do record expenditure and we do have fund balances. So this looks like a good candidate. But let's take a look at C. The first from accrual accounting, yes, it does differ from accrual accounting only in its failure to recognize long-term asset and liability. It does differ from accrual accounting in the fact that it does not recognize long-term assets and long-term liabilities. So C is partially correct statement. However, it's not fully correct. It's partially correct because it does also differ in terms of revenue recognition. Revenue is, we record revenue under the modified basis. And you need to know this when the funds are measurable and available to finance current expenditure, the expenditure in the current period. So it's not only C. So C is out. B is the best answer because C, it says only. That's not the only thing that it differ. It does differ in that sense. We don't have long-term assets, long-term liabilities. But that's not the only option. You want to make sure, walking into the exam, knowing what modified accrual, you know, check out my website. I have lectures that cover this topic in an hour, an hour and a half plus examples where you would know this inside out. Let's take a look at this question. Let's see the question first. What would be the total non-spendable fund balance? Well, before you answer the question, you need to know what is non-spendable fund balance? Well, non-spendable means you cannot spend it. You cannot use it. You cannot convert it to cash. Spendable means, can you take it? Spend it. It means, can you convert it to cash to spend it? So things that cannot be converted to cash, what would that be under the fund balance? Well, I'll tell you, if you have any inventories, any supplies, any prepaid, those are used to operate the business, to operate the business. Therefore, I'm going to be looking for stuff that are used, not the business here, are used to operate the government. 69,000 of prepaid insurance. Would that be considered a part of operating the government? Of course. Why would you prepay for the insurance? You want to insure the vehicles? You want to insure the building in case something happened? I would say prepaid insurance is a non-spendable fund balance. 410,000 rainy fund approved by the township governing body with specific condition for its use. Well, for one thing, it's, we can use it. We can spend it into cash, so that does not fit the non-spendable. We're going to see what were this 410,000 fit under which fund balance? 1,800 of supplies inventory. I told you, if you're running the government, you need to, you need supplies, you need inventory. That's an unspendable. You would use it. 60,000 state grant for snow removal. Well, we can use this, right? Because we can spend it, but for snow removal, it's not non-spendable. It is spendable. 150,000 contractual obligation for the purpose, for the purpose of equipment. We can use this cash to purchase equipment. Therefore, it's non, it's non-spendable. It's not non-spendable. It is spendable. Outstanding incumbrances of 105,000 for the purchase of furniture and expenditure. Well, guess, furniture and fixture. Well, we are already committing this money to do something with it. Or we're assigning this money to do something with it. Therefore, it's a spendable, total fund balance. That's everything. So the only thing that's non-spendable or non-spendable fund balance is supplies and inventory. And that's going to give us 70,800 dollars. So you need to know what non-spendable balance. Think of non-spendable balance. Think of them as prepaid supplies inventory. That's what you want to be thinking about. And think about the word non-spendable. It means we're not going to use them. We're not going to use the cash to do something with it. We're going to use it for operational purposes. Okay. Not converted to cash. Let's take a look at this question. The same sets of fact, except what are the restricted fund balances? Now you need to know what is restricted. What does restricted fund balance mean? Well, restricted means it's resources that net resources. However, it's restricted. Okay. And it's subject to constraint. It's restricted. But that constraint is by an outside party. Outside party means what? It could be the bank. We took a loan out and they put some conditions on us. It could be another government like another state government, federal government. So someone's putting restriction on us. But it's not the government entity itself. Okay. Let's take a look at the options. We already figured out prepaid. We already figured out supplies. We don't have to go through those 410,000 rainy day fund approved by the township governing body. Hold on a second. It sounds like it's not restricted, but it's it's it's assigned somewhere, but it's not by a third party. It's the governing. It's the township governing body. This one is out 60,000 state grant for snow removal. Well, we have 60,000. It's a grant, but for a specific purpose. And the state government is an outside party. I would say this is a restricted fund. It's restricted for a specific purpose by an outside party. Remember, by an outside party, 150,000 contractual obligation for the purpose of equipment. There is no, you know, we decided to do that outstanding encumbrances. The township itself will decide on the outstanding encumbrances and the total fund is everything, which is it can be everything is restricted. Therefore, the answer is C, because the only option here that's restricted by an external party is the snow removal, the 60,000 that the state government gave us for a specific purpose. And that's snow removal. Let's take a look at this question. And here we are being asked, what is the committed fund balance? Once again, before you answer the question, do you know what a committed fund balance is? Well, it's not resources, okay, in the government fund. Okay, here it's assigned by a government body for a specific purpose. And how is it assigned? It's assigned by law, by ordinance. In other words, the city council or the state board or the county board or whatever that legislative body, they created a law. They formally made a decision to commit those funds. This will be committed funds. Let's take a look. So 69,000 is out. The supplies are out. The 60,000 is out. We already know this. They cannot be, they cannot be, they cannot be committed fund. Well, let's take a look at this 410,000. They found approved approved by the township governing board eating the fits committed in for a specific condition for its use. I would say that's a committed fund. 150,000 contractual obligation for the purpose for for the purchase of equipment. I would have to say, although it doesn't say it's approved by law, but here because it's a contract, it's official enough that it's committed, you can no longer back out. The idea of a contract is once you sign a contract, the purpose of a contract, you can back out. Therefore, I would say that's also a committed fund. Outstanding incumbrances 105,000 for the purchase of furniture and fixture. There's a difference between incumbrances and contractual obligation. Incumbrances mean we decided to make this purchase. Therefore, we put that money away. Can we back out? Sure, we can. But under a contract, the assumption is we can back out. Therefore, I would say 150 plus 410, which will give us 560 is the committed fund. What would be the total assigned fund? So again, you need to know what is the assigned fund? Well, the assigned funds are resources assigned for a specific purpose. Hold on a second. This sounds like committed fund, right? The only difference here is you don't have a formal legal, you're not taking any formal steps. In other words, if you change your mind, you can easily change your mind when the fund is an assigned fund, not like a committed fund where you either have a contract or it's approved by a government body. Therefore, we can take out the 410, we can take out the 69, we can take out the supplies, the state grant, contractual obligation, and what's left is 105. That's the only thing that's assigned fund balance. So you can easily change your mind. If we decided not to buy those furniture and fixture, we can back out. No notice here, no contractual obligation. If we are under contract, it goes from assigned to committed, but we are not here under any sort of a contract, which we can change our mind. What would be the total unassigned fund balance? What is the unassigned? It means anything else that doesn't fit into the other fund balance as well. We have a total fund balance of $1,010,500. We can deduct the rest, which is we can deduct 69,000. We can deduct 410. Basically deduct all the other balances. What's left is unassigned fund balance. It means we can do whatever we want with it. For the purpose of this, if we deduct everything, the answer will be 214,700. It means all of those are either committed, assigned, restricted somewhere. What's left is 214,700. Think of this as the government can do anything with this money. It's unassigned in the general fund, which is good. The more you have of that, the better off you are because you can use this money to serve as the public. At the end of this recording, I'm going to remind you to like this recording, check out my website, forhatlectures.com, for additional explanation about this topic. And if you're studying for your CPA exam, if you have a CPA course, keep it. I'm not asking you to change your mind. But I'm asking you to try out my system for $30 to see if I can help you pass this exam. I helped many people in the past. Check out my LinkedIn recommendations and you will see. Anyhow, stay safe, study hard, and good luck.