Lesson: Conceptual framework - Practice Questions

Instructor: Nick Palazzolo

In this lesson, Nick Palazzolo, CPA, dives into the intricacies of governmental accounting, focusing on assets, liabilities, revenues, and expenses as they relate to governmental funds rather than traditional business accounting. You'll explore how the acquisition of a new police car is reported in a government fund statement and why the term 'expenditure' is used instead of 'expense'. Nick also demystifies the meaning behind a debit balance in the budgetary fund balance account, providing a step-by-step walkthrough of budget entries. To further clarify the government-wide financial statement conversion process, he explains which activities should be excluded, particularly highlighting the treatment of fiduciary activities. Emphasizing practical techniques for mastering these concepts, Nick encourages a holistic approach to studying to maintain well-being throughout the journey of passing the exam.

Updated: June 18, 2024 Create an account

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Recommended Lessons

Governmental Assets, Liabilities, Revenues & Expenses Overview and Objectives

Governmental Fund Structure

Governmental Revenues - General Fund

Governmental Expenditures - General Fund

Governmental Revenues - Special Revenue Fund

Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Welcome back everybody to another bunch of questions here. This time today we have questions on governmental assets, liabilities, revenues, and expenses. That is a mouthful, right? Well, this is going to be a balance sheet and income statement, although it won't be called that for government. Generally speaking, that's what these are. Let's check out some questions. So, how should a city's general fund report the acquisition of a new police car in its governmental fund statement of revenues, expenditures, and changes in fund balance? Let's think about that for a second. Well, this is an acquisition of a police car. We're talking about the statement of revenues, expenditures, and changes in fund balance. That's going to make me, in my mind, cross off our non-current asset and our PP&E because those are assets. Those don't sound like they belong here. It sounds like more of a net position financial statement. And that's the reason. It's not just me. Also, we end up with expense and expenditure. Now, what's the thought process between these two? Well, it is as simple as when we're using our governmental funds, and since the general fund is a governmental fund, the word expense is not used. We use the word expenditure. Now, I'm not going to go into the reason why it's not important for the exam. Simple rule. Whenever you're dealing with governmental funds, you use the word expenditure. A couple weird things, like encumbrances, some new concepts. This one is just a word. We don't use the word expense. Alright, moving on. The budget for the city of Goodville for the year ending December 31 was adopted and recorded on January 2nd of the same year. After recording the budget, the accounting records showed a debit balance of $50,000 in the

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Governmental Accounting: Part 1

Module: 3 Concepts, 29 Lessons

Governmental Assets, Liabilities, Revenues & Expenses Overview and Objectives

1:32

Governmental Fund Structure

1:12

Governmental Revenues - General Fund

1:31

Governmental Expenditures - General Fund