GAFRB Exam Dumps - Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB)

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

The agency uses accrual accounting, meaning bad debt expense should be recognized based on the revenue earned, not the cash collected. The historical bad debt rate is 5%.

Fee revenue recorded = $1.1 million

Bad debt expense = 5% × $1,100,000 = $55,000

This matches the standard accounting treatment under FASAB SFFAS No. 1, where the expense is estimated and recognized in the same period as the related revenue.

Relevant References:

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

GAAP treatment for allowance for doubtful accounts

Treasury Financial Manual – Accounts Receivable Accounting

Answer: C. $55,000