Governmental and Not-for-Profit Accounting Practice Question

Question

A test item asks for the most accurate explanation for the CPA FAR Financial Accounting and Reporting involving cash flows in Governmental and Not-for-Profit Accounting. Which response best applies the concept? (Item 2)

Answer choices

1. A. Document nothing because documentation could create follow-up questions.
2. B. The best answer is to choose the accounting treatment that best matches recognition, measurement, presentation, and reporting principles for the cash flows scenario.
3. C. Rely on informal custom instead of the applicable rule, control, or standard.
4. D. Skip verification because the previous case had the same answer.

Correct Answer

B. The best answer is to choose the accounting treatment that best matches recognition, measurement, presentation, and reporting principles for the cash flows scenario.

Explanation

The correct answer is B because cash flows is tested by asking candidates to choose the accounting treatment that best matches recognition, measurement, presentation, and reporting principles. The distractors reflect common exam mistakes: ignoring context, using informal shortcuts, skipping verification, or applying a rule from the wrong domain.

Question details

• Difficulty: medium
• Domain: Governmental and Not-for-Profit Accounting
• Objective: cash flows

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