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In this video from Super Fast CPA, we are going to cover the measurement focus and basis of accounting
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for governmental accounting. Again, in Super Fast CPA fashion, we're going to go straight into
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example problems because I think that is the best way for you to learn the information
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instead of just going through a bunch of slides kind of in textbook format and going through
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all the information. It sticks in your brain better by going through questions first. So example
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problem one, which of the following would not be accrued as revenue by the general fund of Raccoon
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City? Would it be sales tax collected by merchants, state-held sales tax that will soon be remitted
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to Raccoon City, property taxes levied, or interest and penalties on delinquent taxes? So which of
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the following would not be accrued as revenue? So take a second, pause the video, and read through
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these responses, even if you're brand new to government accounting, and just think about each one
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and then just make a guess. And obviously, if you're new to this, that's all you're doing right now
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is just guessing. But it helps you learn the material and the answer will stick in your brain
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much better if you've actually tried to read through the responses and you at least make a guess
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before you go on. Okay, so we're going on now. The answer is sales tax collected by merchants
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So here's the explanation. The sales tax that is collected by merchants and then remitted back to Raccoon City
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that would not be accrued. It would be recognized as revenue when those funds are actually received by the city
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Sales tax being collected by merchants is not measurable or available until it's been given back to the city
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So under modified accrual accounting, which is what general funds operate under, revenue isn't recognized and
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it is number one measurable and number two available. Revenue that can be accrued needs to be
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measurable and then to be considered available it needs to be legally due prior to the receipt of cash
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meaning that it needs to be due within the current period. So items that fit that description
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would be something like property taxes or interest and penalties on delinquent taxes
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investment revenue, taxes collected by other government entities, but have not yet been remitted
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such as the state collecting sales tax that will be soon remitted to Raccoon City even though they haven received that that is something they would accrue Also like property taxes those are levied They are legally due
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from the citizens within the current period, so those would be accrued as revenue as well
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Now, there's also the 60-day rule, and this just adds on to this part about being legally due
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So if something is legally due within the current period, they can count that as revenue
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but also if they expect to receive it within the first 60 days of the next fiscal period
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or the next fiscal year, they can count that as revenue for the prior year
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Going on to example problem number two, which of the following is the measurement focus of governmental fund accounting
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Is it economic resources, current financial resources, expenditures of resources, or encumbrance accounting. Again, pause the video, read through those
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responses, think about what the words actually mean, and then make your best guess
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All right, moving on, the answer is current financial resources. Governmental funds use the
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modified accrual basis of accounting, which focuses on current financial resources. Revenues
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are recognized when they are measurable and available. So the tax, types of governmental funds are, number one, the general fund, two would be special revenue funds
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three would be debt service funds, four would be capital project funds, and five would be
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permanent funds. So within government accounting or governmental accounting, there are three
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different types of funds. There are governmental funds, which is what we're talking about
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but then there are proprietary funds and fiduciary funds, and those two types use
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full accrual accounting or what you're used to in business. Proprietary funds and fiduciary funds focus on economic resources
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That means revenues are recognized when they are measurable and earned. And again, contrast that with the measurement focus of current financial resources
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which governmental funds use, which is measurable and available. Moving on to example problem three, Corona City levied one million of property
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taxes. Based on prior year collection rates, the city estimated that 100,000 of the property
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taxes would be uncollectable. Based on this information, what account and for what amount
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would the city debit for the property tax levy Would it be revenue for million revenue for property tax receivable for million or property tax receivable for Take a second pause the video read through these options
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and make your best guess. Moving on, the answer is property tax receivable for $1 million. So here's how
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this works. The levy was for a million, so Corona City would debit property tax receivable for that $1 million
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million dollars. The credit would then be to revenue for 900,000 because you do have 100,000 of
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estimated uncollectable taxes, and that would go as a credit to the allowance for uncollectable
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taxes for 100,000. So as a side note here, if you're really thinking about this, you might be
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wondering, well, just because they levied the taxes, the taxes aren't available when they pass the levy
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and that's correct. So again, the actual funds from the taxes aren't available right then and there
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but the government can accrue the likely collectible amount as revenue. Again, if the amounts are
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legally due within the period or by the end of the period, or again, you know, the 60 day rule
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within 60 days of the end of the current period. So remember that available can also mean any amount
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that is legally due by the end of the period. So forms of taxes where those get levied or passed or
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the taxpayer owes a certain amount in taxes, that's legally due within the current period
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Those would be amounts that can be accrued as revenue. Here's what the full entry would look like
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You have a debit to property tax receivable for a million. Then you credit revenues for
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900,000, and you also credit the allowance for uncollectable taxes for 100,000. Moving on
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to example problem number four. In the previous year, Corona City recorded revenue of 50,000 for
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licenses and fees collected in the general fund. In the current year, Corona has $60,000 budgeted for
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licenses and fees. Based on these facts, how much revenue would the city record for licenses
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and fees in the current year? Is it 10,000, 50,000, 60,000, or it depends on how much the city
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actually collects? Take a second, read the question again. think through it, pause the video, and when you've made your guess, then move on
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So moving on, the answer is it depends on how much the city actually collects
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General funds use the modified accrual basis of accounting as we talked about and to record revenue the revenue has to be one measurable and two available Now for something like licenses and
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fees, they aren't measurable and available until they are actually collected. So the city
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wouldn't record any revenue until the licenses and fees have actually been collected. So the
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total amount of revenue from licenses and fees depends on how much the city actually collects
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it doesn't have anything to do with the prior year or the budgeted amount
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The final entry would just be a debit to cash for the collected amount, and then the same
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amount would be credited to revenue. Now, if this is your first video you've ever come across from Super Fast CPA, we're really
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big on the how behind your study process, because everyone out there has a review course
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Everyone out there is kind of doing the same thing. They're trying to watch the video lecture, read the chapter, and then go to the
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questions. But across the board, 50% of people fail their exams. So why is that? It comes down to
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how you study. When you have a few hours to study each day, how are you actually spending that
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time? We have a free training that we do several times a week. We call these our study hacks training
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sessions. We will walk you through exactly what to do when you sit down to study so that there's no
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guesswork. You don't feel like you're spinning your wheels. And you will learn how to do a two-hour main
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session because our whole thing is solutions for busy CPA candidates. So people that are working
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full-time and still trying to pass their exams, you will learn on this training how to have a two-hour
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slash pass now, or you can just text the word, pass now as one word, to 4422, and we will send you back a link
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What I always say about these trainings is that this is one hour that can literally save you months and
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hundreds of dollars from avoiding failing sections. You'll find this training incredibly helpful
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