State and local government
Governmental accounting CPA exam questions are hard for a reason candidates rarely name: the same government reports the same transaction twice, on two different bases. Governmental funds use modified accrual, where revenue must also be available — collectible soon enough after year end to pay this year’s bills. The government-wide statements use full accrual, where it need not. Almost every wrong answer in this group is the right number from the other statement.
| Blueprint group | FAR-I-C |
| Area weight | 30–40% |
| Approx. share of the exam | 5.8% |
What the Blueprint asks for here
At this group the Blueprint expects a candidate to understand the measurement focus and basis of accounting used by governmental funds and by the government-wide statements, to determine the fund types and fund balance classifications a state or local government reports, and to calculate the amounts reported under each basis.
This is our paraphrase, not the Blueprint’s wording. verbatim quote pending The authoritative representative-task text is in the AICPA Blueprints, which are published free — download them and read the group directly. We will not print a quotation we have not taken from the source document.
Governmental accounting CPA exam items: state and local government in FAR
Why this group is worth its weight
State and local government is the group candidates most often name as the one they intend to write off, and the calculation is usually wrong. It carries the same weight as any other group in Area I, it is examined on a small and stable set of mechanics, and unlike most of FAR it is unfamiliar to everyone at the same time — there is no cohort of candidates who absorbed it at work.
Two bases, one transaction
A governmental fund uses the current financial resources measurement focus and the modified accrual basis. Revenue is recognised when it is both measurable and available, and available means collectible within the current period or soon enough afterwards to pay current-period liabilities. For property taxes that window is commonly taken as sixty days after year end. The government-wide statements use the economic resources focus and full accrual, so the availability test does not apply and the same levy produces a larger revenue figure.
What the availability window actually does
It moves revenue across the year-end line, not out of existence. Taxes levied for this year but collected too late to be available are reported as deferred inflows of resources in the fund statements and recognised as revenue in the period they become available. That is why the exam gives you a collection schedule broken into three pieces — collected during the year, collected within the window, collected later. Each piece is doing a job, and a candidate who adds all three has answered the government-wide question.
The other half of the group
Expenditures rather than expenses; capital assets and long-term debt absent from the governmental fund balance sheet but present government-wide; fund balance reported in five classifications running from nonspendable to unassigned. None of that is conceptually hard. It is unfamiliar vocabulary attached to familiar arithmetic, which is exactly the kind of material that rewards a small number of worked items over a large amount of reading.
The standard this group is examined on is published by the standard setter: GASB, standards and guidance. The Blueprint coordinates and weight ranges above come from the AICPA Blueprints. What is ours, and labelled as ours, is the reading, the practice item and the misconception tags.
A practice item
our own practice item Written by us against the public Blueprint. It is not an AICPA question and it is not taken from any review course.
A county levies property taxes of $1,000,000 for the current fiscal year and estimates that $50,000 will be uncollectible. During the year it collects $880,000 of the levy. It collects a further $45,000 within 60 days after year end, and expects to collect the remaining $25,000 later in the following year.
What amount of property tax revenue should the county report in its governmental fund financial statements for the current year?
| A | $925,000 | correct |
| B | $950,000 | |
| C | $880,000 | |
| D | $1,000,000 |
The rule
Under the modified accrual basis used by governmental funds, revenue is recognised when it is measurable and available — collectible within the current period or soon enough thereafter to pay liabilities of the current period. Amounts levied for the period but not available are reported as deferred inflows of resources rather than as revenue. Under the full accrual basis used in the government-wide statements the availability criterion does not apply.
The arithmetic
Available means collected during the year or within the availability window after year end: $880,000 + $45,000 = $925,000 of fund revenue. The remaining $25,000 is measurable but not available, so it is a deferred inflow of resources. The government-wide figure is the whole net levy, $1,000,000 − $50,000 = $950,000, which is exactly $25,000 higher — the same amount, recognised in a different period.
What we would ask you first
This is the part of the product that is hard to show without an account, so here it is directly: for each wrong option above, the opening question our tutor asks — before any explanation — targeting the specific mistake that option represents. Choosing B ($950,000) and choosing D ($1,000,000) are different errors and deserve different first questions.
If you chose B — full_accrual_applied
“Your figure is the net levy, and it is a real number in this problem — it is the amount the government-wide statement of activities reports. Which set of statements did the question ask about, and what extra test does that basis impose?”
If you chose C — availability_window_ignored
“You applied a test and stopped one step early: everything collected by 31 December counted, everything after it did not. Is the cut-off the year end, or something a little later?”
If you chose D — allowance_ignored
“Your figure is the gross levy. One number in the fact pattern is doing nothing at all in your answer. What is the $50,000 for?”
To be precise about what happens next: the exchange is a rate limit, not a gate. Answering well gets you to the full worked explanation in three or four exchanges; answering badly still gets you there. And if you would rather skip it, asking three times gets you the walkthrough.
Common questions
What is the modified accrual basis of accounting?
The basis used by governmental funds. Revenue is recognised when it is measurable and available, where available means collectible within the current period or soon enough after the end of it to pay current-period liabilities. For property taxes that window is commonly taken as 60 days. Amounts levied but not available are reported as deferred inflows of resources.
Why do governmental fund and government-wide statements report different revenue?
Because they use different bases. Governmental funds use modified accrual and apply the availability test; the government-wide statements use full accrual and do not. The same property tax levy therefore produces a smaller fund revenue figure and a larger government-wide figure, and the difference is a timing difference rather than a disagreement about the amount.
Misconception tags in this group
These are the labels our diagnosis attaches when a wrong answer matches a known pattern. They are worth reading even if you never use the product — naming your own error is most of the work.
full_accrual_applied— Answering with the government-wide figure when the fund statements were asked for.availability_window_ignored— Cutting revenue off at year end and ignoring the availability period after it.allowance_ignored— Using the gross levy and ignoring the estimated uncollectible amount.expenditure_vs_expense— Reporting an expense where a governmental fund reports an expenditure.