A city finance director reviews the year-end close. Property taxes levied in December are 92% collected by fiscal year-end, with another 6% expected in the first two months of the new year. A federal grant was awarded in October but the city has not yet incurred qualifying expenditures. A sales tax remittance from the state arrived January 15 for December activity. Each item follows a different recognition path, and the exam will test whether you can classify the transaction, apply the correct basis, and calculate the revenue to record.
AICPA Representative Tasks (verbatim). "Calculate the amount of nonexchange revenue to be recognized by state and local governments using the modified accrual basis of accounting and prepare journal entries." "Calculate the amount of nonexchange revenue to be recognized by state and local governments using the accrual basis of accounting and prepare journal entries."
GASB Statement No. 33 governs nonexchange transactions: transactions where a government gives or receives value without directly receiving or giving equal value in return.
Common mistakes
- Confusing time requirements with purpose restrictions. Time requirements delay recognition: if the grant is for fiscal 2027, you cannot recognize revenue in 2026. Purpose restrictions (use for roads only) do NOT delay recognition. Record the revenue and classify net position as restricted.
- Ignoring the availability criterion under modified accrual. Accrual basis recognizes revenue when eligibility requirements are met. Modified accrual adds the available test. Candidates who compute accrual revenue and assume it applies to the General Fund miss the adjustment.
- Using gross levy instead of net levy for property taxes. Property tax revenue is always reduced by estimated uncollectibles. A $10 million levy with 3% estimated uncollectible yields $9.7 million revenue (before any availability adjustment). The exam will include the uncollectible estimate in the fact pattern, use it.
Bottom line
- Nonexchange transactions: one party gives value without receiving equal value (taxes, grants, fines, donations).
- Four GASB 33 classes: derived tax revenues, imposed nonexchange revenues, government-mandated nonexchange transactions, voluntary nonexchange transactions.
- Accrual basis (government-wide, proprietary): recognize when all eligibility requirements are met.
- Modified accrual basis (governmental funds): recognize when measurable and available (collected within the availability period, typically 60 days).
Exam shortcut
When a property tax problem gives you levy, uncollectible estimate, and collection timing, work in two steps: (1) net levy = levy minus uncollectibles (applies to both bases), (2) for modified accrual only, further reduce to available amount. The difference between the two steps is the deferred inflow. When a grant problem describes reimbursement or expenditure-driven terms, cap revenue at qualifying expenditures incurred, regardless of award amount.
The full lesson (about 2,691 words, 18 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- III.C6
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