AGA Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB) GAFRB Exam Dumps: Updated Questions & Answers (September 2025)

Comprehensive Detailed Explanation:

In governmental funds (using the modified accrual basis), expenditures are recorded when financial resources are used — typically when cash is disbursed. However, in government-wide statements (accrual basis), only the portion of the asset’s cost consumed in the period is recorded as an expense (i.e., depreciation).

Paying for capital assets such as vehicles is an expenditure in the governmental funds, but not an expense in the accrual-based government-wide financials. Instead, the cost is capitalized and depreciated over time.

Relevant References:

GASB Statement No. 34 – Government-wide vs. Fund Financial Reporting

GASB Codification Section 1300 – Modified Accrual Accounting

GFOA Best Practices – Capital Asset Reporting

Answer: C. At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.

Although the building is listed on the National Register of Historic Places (a heritage asset), renovations that support current operations and serve general purposes (e.g., office upgrades) are considered capitalizable or expensed under general property, plant, and equipment (G-PP&E), not stewardship or heritage classifications.

Stewardship or heritage classifications apply to assets whose primary purpose is historical preservation, not ongoing operations.

Relevant References:

FASAB SFFAS No. 29 – Heritage Assets and Stewardship Land

FASAB SFFAS No. 6 – General PP&E Accounting

OMB Circular A-136 – Capital Asset Guidance

Answer: D. general property, plant and equipment expense

When a payment is made for rent, an expense is incurred and cash is reduced. The correct journal entry is:

Debit Rent Expense $500 → to recognize the cost

Credit Cash $500 → to reflect the cash outflow

Answer: D. debit expense $500, credit cash $500

Relevant References:

FASAB SFFAS No. 4 – Managerial Cost Accounting Concepts and Standards

Basic governmental and commercial accounting journal entry conventions

Non-exchange revenues are those in which a government gives or receives value without directly receiving or giving equal value in return. Sales taxes are a classic example of a non-exchange revenue because the payer (consumer) does not receive a direct, measurable benefit from the government in exchange for the tax paid.

Other examples of non-exchange revenues include property taxes, grants, and fines. In contrast, licensing fees and investment earnings are exchange or exchange-like revenues, since they involve a mutual benefit or earnings return.

Relevant Standards and References:

GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions

GASB Codification Section N50

GFOA Revenue Classification Guidelines

A component unit is a legally separate entity for which the elected officials of the primary government are financially accountable. This accountability may arise if the primary government:

Appoints a majority of the governing board, and

Is able to impose its will or has the potential to receive financial benefits or bear financial burdens.

Component units are reported in the financial statements of the primary government, either as blended or discretely presented entities.

Relevant Standards and References:

GASB Statement No. 14, The Financial Reporting Entity

GASB Statement No. 61, The Financial Reporting Entity: Omnibus

GASB Codification Section 2100: Defining the Financial Reporting Entity

Therefore, Option B is correct.

According to GASB Statement No. 96 (Subscription-Based Information Technology Arrangements or SBITAs), a subscription agreement is considered “short-term” if the maximum possible term (including renewal options) is 12 months or less.

Short-term SBITAs are not reported as subscription liabilities and are accounted for as outflows (expenses or expenditures) when incurred.

Relevant References:

GASB Statement No. 96 – SBITAs (Issued May 2020)

GASB Implementation Guide No. 2021-1 – Q&A on SBITAs

GFOA Advisory – Cloud Computing and Subscription Agreements

Answer: B. 12 months

Comprehensive Detailed Explanation:

Internal service funds are proprietary funds used to account for the operations of departments or functions that provide goods or services to other departments within the same government on a cost-reimbursement basis. Examples include:

Centralized IT/data processing

Fleet management

Print shops or mail centers

These are not used for general public services, capital acquisitions, or restricted revenues (which belong in special revenue or capital projects funds).

Relevant References:

GASB Statement No. 34 – Fund Types

GASB Codification Section 1300 – Internal Service Funds

GFOA Fund Accounting Best Practices

Answer: D. financing of services provided to other governmental units on a cost reimbursement basis.

This is the point when a proprietary entry and a budgetary entry must both be recorded:

Proprietary entry: To record the asset (e.g., equipment) and recognize the payable

Budgetary entry: To move from unpaid obligation (Undelivered Orders) to paid obligation (Delivered Orders)

Receiving goods/services triggers both the accrual of the expense and the update of the obligation’s status in the budgetary accounts.

Relevant References:

FASAB SFFAS No. 1 – Accounting for Selected Assets and Liabilities

Treasury Financial Manual, Part 2, Ch. 4700 – Proprietary vs. Budgetary Accounting

GAO Red Book – Appropriations Law

Answer: B. A contracting officer's representative receives delivery of previously ordered printers.

State and local government budgets primarily serve to:

Set public policy priorities

Provide legislative control over taxing and spending

Serve as a financial planning tool

Debt policy is typically established outside the annual budget process and guided by a separate debt management policy that sets borrowing limits, credit rating objectives, and debt service goals.

Relevant References:

GFOA Best Practices – Role of the Budget

NASBO Budgeting Handbook

GASB Concept Statements – Financial Reporting Objectives

Answer: C. determine debt policy

The Federal Accounting Standards Advisory Board (FASAB) establishes Generally Accepted Accounting Principles (GAAP) for federal government entities. FASAB is recognized by the American Institute of Certified Public Accountants (AICPA) as the authoritative source of GAAP for federal agencies.

Other agencies:

OMB: Issues financial reporting guidance and formats (e.g., A-136), but does not set GAAP.

GAO: Audits financial statements and issues internal control guidance.

FASB: Sets GAAP for private sector and some not-for-profit organizations—not federal.

Relevant References:

FASAB Memorandum of Understanding (GAO, Treasury, OMB)

AICPA Rule 203 Designation of FASAB as the GAAP Authority

SFFAS No. 34 – The Hierarchy of GAAP

Answer: A. FASAB