GFOA CPFO — Accounting and Financial Reporting Examination
Government Finance Officers Association | 2026/2027 Practice Exam — 100 Questions with Verified
Solutions
Domain 1: Accounting (30%)
GASB Standards, Measurement Focus & Basis of Accounting, Fund Accounting, Grant Accounting,
Capital Assets, Interfund Transactions, Leases, SBITAs, Deferred Inflows/Outflows
1. Under GASB Statement No. 34, which of the following is the primary distinction
between governmental activities and business-type activities in the government-wide
financial statements?
A) Governmental activities use modified accrual basis while business-type activities use cash
basis
B) Governmental activities are reported in governmental funds while business-type activities
are reported in proprietary funds
C) Governmental activities use the economic resources measurement focus while business-type
activities use the current financial resources measurement focus
D) Governmental activities are generally supported by taxes and
intergovernmental revenues while business-type activities are supported by user
fees and charges
Rationale: GASB 34 establishes that governmental activities (reported in governmental funds and
converted to government-wide statements) are primarily supported by taxes and intergovernmental
revenues, while business-type activities (reported in proprietary funds) rely on exchange-like
transactions and user charges. This distinction determines the measurement focus and basis of
accounting applied at the fund level. Governmental funds use modified accrual and current financial
resources measurement focus, while proprietary funds use full accrual and economic resources
measurement focus. The government-wide statements present both using the economic resources
measurement focus and full accrual basis.
2. A city uses modified accrual accounting for its General Fund. Under this basis,
revenues are recognized when they become:
A) Earned and realizable
B) Measurable and available
C) Collected in cash
D) Authorized by the governing board
Rationale: Under modified accrual accounting, revenues are recognized when they become both
measurable and available. 'Available' means collectible within the current period or soon enough
thereafter to pay current-period liabilities (typically within 60 days after year-end for
governmental funds). This standard is established by GASB Statement No. 33, 'Accounting and
Financial Reporting for Nonexchange Transactions,' and is a fundamental principle of the current
financial resources measurement focus used by governmental funds.
3. Which GASB statement requires state and local governments to present basic
financial statements including both government-wide financial statements and fund
financial statements?
A) GASB Statement No. 31
B) GASB Statement No. 34
, C) GASB Statement No. 54
D) GASB Statement No. 68
Rationale: GASB Statement No. 34, 'Basic Financial Statements—and Management's Discussion
and Analysis—for State and Local Governments,' fundamentally changed governmental financial
reporting by requiring government-wide financial statements (Statement of Net Position and
Statement of Activities) alongside fund financial statements. Issued in 1999, this landmark standard
introduced the dual-perspective approach to financial reporting, providing a comprehensive view of
a government's financial position and results of operations.
4. A county receives a federal grant to reimburse eligible expenditures for a specific
public health program. When should the county recognize revenue from this grant
under modified accrual accounting?
A) When the grant agreement is signed
B) When the cash is received from the federal government
C) When the eligible expenditures are incurred, provided the grant proceeds are
available
D) When the grant is awarded by the federal agency
Rationale: For expenditure-driven grant agreements under modified accrual accounting, revenue
recognition is tied to the expenditure side. Revenue should be recognized when the qualifying
expenditures are incurred, assuming the grant proceeds are available (collectible within the current
period or soon enough thereafter to pay current liabilities). GASB Statement No. 33 provides
guidance on revenue recognition for nonexchange transactions, including government-mandated
and voluntary nonexchange transactions such as grants.
5. Under GASB Statement No. 54, fund balance in governmental funds is classified into
how many categories?
A) Three
B) Four
C) Five
D) Six
Rationale: GASB Statement No. 54, 'Fund Balance Reporting and Governmental Fund Type
Definitions,' established a five-part classification hierarchy for fund balance: Nonspendable,
Restricted, Committed, Assigned, and Unassigned. This hierarchy determines the order in which
fund balance is reduced when expenditures are incurred. The standard provides clarity and
consistency in reporting fund balance and enhances the understandability of governmental fund
financial statements.
6. A city enters into a 10-year lease for office equipment that transfers ownership to the
city at the end of the lease term. Under GASB Statement No. 87, how should this lease
be recorded at inception?
A) As an operating lease with annual rent expense
B) As a capital lease with both an asset and a liability recognized
C) As a lease liability and a right-of-use asset on the statement of net position
D) As a deferred inflow of resources amortized over the lease term
Rationale: GASB Statement No. 87, 'Leases,' requires lessee governments to recognize a lease
liability (a contractual obligation to make lease payments) and a right-of-use asset (the right to use
the leased asset for the lease term) at the lease commencement date. This approach eliminates the
distinction between capital and operating leases. A lease that transfers ownership is considered a
financed purchase under the standard, but both financed purchases and all other leases meeting the
definition are recorded using this right-of-use model.
, 7. Which measurement focus and basis of accounting is used for governmental-type
funds?
A) Economic resources measurement focus, full accrual basis
B) Current financial resources measurement focus, modified accrual basis
C) Current financial resources measurement focus, cash basis
D) Economic resources measurement focus, modified accrual basis
Rationale: Governmental-type funds (General Fund, special revenue funds, capital projects funds,
debt service funds, and permanent funds) use the current financial resources measurement focus
and modified accrual basis of accounting. This means these funds focus on inflows, outflows, and
balances of current financial resources, recognizing revenues when measurable and available, and
expenditures when the related fund liability is incurred. This approach is fundamentally different
from the economic resources measurement focus used in government-wide statements.
8. GASB Statement No. 96 addresses which of the following topics?
A) Revenue recognition from exchange and nonexchange transactions
B) Subscription-based information technology arrangements (SBITAs)
C) OPEB liability measurement and reporting
D) Fiduciary fund reporting requirements
Rationale: GASB Statement No. 96, 'Subscription-Based Information Technology Arrangements,'
provides guidance for governmental entities that enter into SBITAs. These arrangements give a
government the right to use a vendor's IT software, hardware, or both. Under GASB 96,
governments must recognize a subscription liability and a corresponding intangible right-to-use
subscription asset. The standard is analogous to GASB 87 for leases but applies specifically to IT
subscription services.
9. An interfund loan from the General Fund to an Enterprise Fund that is expected to be
repaid within one year should be reported in the government-wide financial statements
as:
A) An interfund transfer
B) An interfund provided-in-kind service
C) A receivable and a payable (internal balances)
D) A reduction in the General Fund balance with no offsetting entry
Rationale: Interfund loans (both short-term and long-term) are reciprocal interfund transactions
where one fund provides resources to another with the expectation of repayment. In the
government-wide financial statements, these are eliminated and reported as internal balances—a
receivable in the lending activity/fund and a payable in the borrowing activity/fund. This treatment
differs from nonreciprocal interfund transfers, which are eliminated in the government-wide
Statement of Activities.
10. A capital projects fund is established to account for financial resources to be used
for the acquisition or construction of major capital assets. Which of the following is
true regarding capital projects funds?
A) They use the economic resources measurement focus and full accrual basis
B) They are governmental-type funds that use modified accrual accounting
C) They are proprietary-type funds that report net position
D) They recognize depreciation expense on capital assets being constructed
Rationale: Capital projects funds are governmental-type funds that use the current financial
resources measurement focus and modified accrual basis of accounting. They do not report
depreciation expense, as capital assets being constructed are not depreciated until placed in service.
Once a capital asset is completed and placed in service, it is reported in the government-wide
Government Finance Officers Association | 2026/2027 Practice Exam — 100 Questions with Verified
Solutions
Domain 1: Accounting (30%)
GASB Standards, Measurement Focus & Basis of Accounting, Fund Accounting, Grant Accounting,
Capital Assets, Interfund Transactions, Leases, SBITAs, Deferred Inflows/Outflows
1. Under GASB Statement No. 34, which of the following is the primary distinction
between governmental activities and business-type activities in the government-wide
financial statements?
A) Governmental activities use modified accrual basis while business-type activities use cash
basis
B) Governmental activities are reported in governmental funds while business-type activities
are reported in proprietary funds
C) Governmental activities use the economic resources measurement focus while business-type
activities use the current financial resources measurement focus
D) Governmental activities are generally supported by taxes and
intergovernmental revenues while business-type activities are supported by user
fees and charges
Rationale: GASB 34 establishes that governmental activities (reported in governmental funds and
converted to government-wide statements) are primarily supported by taxes and intergovernmental
revenues, while business-type activities (reported in proprietary funds) rely on exchange-like
transactions and user charges. This distinction determines the measurement focus and basis of
accounting applied at the fund level. Governmental funds use modified accrual and current financial
resources measurement focus, while proprietary funds use full accrual and economic resources
measurement focus. The government-wide statements present both using the economic resources
measurement focus and full accrual basis.
2. A city uses modified accrual accounting for its General Fund. Under this basis,
revenues are recognized when they become:
A) Earned and realizable
B) Measurable and available
C) Collected in cash
D) Authorized by the governing board
Rationale: Under modified accrual accounting, revenues are recognized when they become both
measurable and available. 'Available' means collectible within the current period or soon enough
thereafter to pay current-period liabilities (typically within 60 days after year-end for
governmental funds). This standard is established by GASB Statement No. 33, 'Accounting and
Financial Reporting for Nonexchange Transactions,' and is a fundamental principle of the current
financial resources measurement focus used by governmental funds.
3. Which GASB statement requires state and local governments to present basic
financial statements including both government-wide financial statements and fund
financial statements?
A) GASB Statement No. 31
B) GASB Statement No. 34
, C) GASB Statement No. 54
D) GASB Statement No. 68
Rationale: GASB Statement No. 34, 'Basic Financial Statements—and Management's Discussion
and Analysis—for State and Local Governments,' fundamentally changed governmental financial
reporting by requiring government-wide financial statements (Statement of Net Position and
Statement of Activities) alongside fund financial statements. Issued in 1999, this landmark standard
introduced the dual-perspective approach to financial reporting, providing a comprehensive view of
a government's financial position and results of operations.
4. A county receives a federal grant to reimburse eligible expenditures for a specific
public health program. When should the county recognize revenue from this grant
under modified accrual accounting?
A) When the grant agreement is signed
B) When the cash is received from the federal government
C) When the eligible expenditures are incurred, provided the grant proceeds are
available
D) When the grant is awarded by the federal agency
Rationale: For expenditure-driven grant agreements under modified accrual accounting, revenue
recognition is tied to the expenditure side. Revenue should be recognized when the qualifying
expenditures are incurred, assuming the grant proceeds are available (collectible within the current
period or soon enough thereafter to pay current liabilities). GASB Statement No. 33 provides
guidance on revenue recognition for nonexchange transactions, including government-mandated
and voluntary nonexchange transactions such as grants.
5. Under GASB Statement No. 54, fund balance in governmental funds is classified into
how many categories?
A) Three
B) Four
C) Five
D) Six
Rationale: GASB Statement No. 54, 'Fund Balance Reporting and Governmental Fund Type
Definitions,' established a five-part classification hierarchy for fund balance: Nonspendable,
Restricted, Committed, Assigned, and Unassigned. This hierarchy determines the order in which
fund balance is reduced when expenditures are incurred. The standard provides clarity and
consistency in reporting fund balance and enhances the understandability of governmental fund
financial statements.
6. A city enters into a 10-year lease for office equipment that transfers ownership to the
city at the end of the lease term. Under GASB Statement No. 87, how should this lease
be recorded at inception?
A) As an operating lease with annual rent expense
B) As a capital lease with both an asset and a liability recognized
C) As a lease liability and a right-of-use asset on the statement of net position
D) As a deferred inflow of resources amortized over the lease term
Rationale: GASB Statement No. 87, 'Leases,' requires lessee governments to recognize a lease
liability (a contractual obligation to make lease payments) and a right-of-use asset (the right to use
the leased asset for the lease term) at the lease commencement date. This approach eliminates the
distinction between capital and operating leases. A lease that transfers ownership is considered a
financed purchase under the standard, but both financed purchases and all other leases meeting the
definition are recorded using this right-of-use model.
, 7. Which measurement focus and basis of accounting is used for governmental-type
funds?
A) Economic resources measurement focus, full accrual basis
B) Current financial resources measurement focus, modified accrual basis
C) Current financial resources measurement focus, cash basis
D) Economic resources measurement focus, modified accrual basis
Rationale: Governmental-type funds (General Fund, special revenue funds, capital projects funds,
debt service funds, and permanent funds) use the current financial resources measurement focus
and modified accrual basis of accounting. This means these funds focus on inflows, outflows, and
balances of current financial resources, recognizing revenues when measurable and available, and
expenditures when the related fund liability is incurred. This approach is fundamentally different
from the economic resources measurement focus used in government-wide statements.
8. GASB Statement No. 96 addresses which of the following topics?
A) Revenue recognition from exchange and nonexchange transactions
B) Subscription-based information technology arrangements (SBITAs)
C) OPEB liability measurement and reporting
D) Fiduciary fund reporting requirements
Rationale: GASB Statement No. 96, 'Subscription-Based Information Technology Arrangements,'
provides guidance for governmental entities that enter into SBITAs. These arrangements give a
government the right to use a vendor's IT software, hardware, or both. Under GASB 96,
governments must recognize a subscription liability and a corresponding intangible right-to-use
subscription asset. The standard is analogous to GASB 87 for leases but applies specifically to IT
subscription services.
9. An interfund loan from the General Fund to an Enterprise Fund that is expected to be
repaid within one year should be reported in the government-wide financial statements
as:
A) An interfund transfer
B) An interfund provided-in-kind service
C) A receivable and a payable (internal balances)
D) A reduction in the General Fund balance with no offsetting entry
Rationale: Interfund loans (both short-term and long-term) are reciprocal interfund transactions
where one fund provides resources to another with the expectation of repayment. In the
government-wide financial statements, these are eliminated and reported as internal balances—a
receivable in the lending activity/fund and a payable in the borrowing activity/fund. This treatment
differs from nonreciprocal interfund transfers, which are eliminated in the government-wide
Statement of Activities.
10. A capital projects fund is established to account for financial resources to be used
for the acquisition or construction of major capital assets. Which of the following is
true regarding capital projects funds?
A) They use the economic resources measurement focus and full accrual basis
B) They are governmental-type funds that use modified accrual accounting
C) They are proprietary-type funds that report net position
D) They recognize depreciation expense on capital assets being constructed
Rationale: Capital projects funds are governmental-type funds that use the current financial
resources measurement focus and modified accrual basis of accounting. They do not report
depreciation expense, as capital assets being constructed are not depreciated until placed in service.
Once a capital asset is completed and placed in service, it is reported in the government-wide
