Chapter 17, Problem 17.9Q

To determine

Measurement focus and basis of accounting: the concept of measurement focus and basis of accounting are very important in understanding accounting for various governmental funds.

The measurement focus refers to the flows that should be measured for operations. The basis of accounting refers to the timing of recognizing a transaction for financial reporting purposes. For the purpose of recognition of funds the modified accrual basis is used that includes some aspects of accrual accounting and some aspects of cash basis accounting.

Expenditures for inventory: most governmental units maintain small amount of inventory in office supplies. Inventory is not an expendable asset; that is it may not be spent as the governing entity wishes NCGA 1 inventory should be recognized based on the materiality of the amount.

To explain: why do some governmental units not report small amounts of supply on inventories in their balance sheets?