Preparing Governmental Financial Statements Under the Correct Basis

BAR government-reporting chapter covering conversions, budgetary accounting, and fund statements.

This chapter covers the mechanics of building governmental statements once the fund framework is understood. BAR emphasizes how modified-accrual information, budgetary accounting, and fund statements fit together in an organized reporting process.

The key is to identify the statement being prepared before choosing the basis. Governmental fund statements, proprietary fund statements, fiduciary fund statements, and government-wide statements do not answer the same reporting question.

In This Chapter

Modified Accrual versus Full Accrual Conversions explains the adjustments needed between different reporting views.
Budgetary Accounting, Encumbrances, and Lapsing covers planning and control entries unique to governmental environments.
Governmental Fund Statements explains the main statements used for governmental fund reporting.
Proprietary and Fiduciary Fund Statements covers statement preparation for the other major fund categories.

Statement Preparation Lens

Statement issue	What changes the treatment	Common BAR trap
Modified-to-full accrual conversion	Long-term assets, long-term liabilities, and accrual treatment may need adjustment.	Carrying governmental fund numbers into government-wide statements unchanged.
Budgetary accounting	Budgetary entries support legal control and may lapse.	Treating encumbrances as ordinary expenses.
Governmental funds	Current financial resources focus and modified accrual basis drive recognition.	Applying proprietary-fund logic to governmental-fund statements.
Proprietary and fiduciary funds	Economic resources focus and accrual accounting are generally used.	Combining fund categories without respecting their reporting purpose.

Statement Selection Sequence

Step	Question to answer	Why it matters
Identify the reporting view	Is the problem asking for fund statements or government-wide statements?	The reporting view drives the measurement focus and basis of accounting.
Classify the fund	Is the fund governmental, proprietary, or fiduciary?	Each fund category has different statement mechanics and recognition rules.
Apply the basis	Does modified accrual or full accrual apply?	Recognition and conversion adjustments depend on the basis.
Handle budgetary effects	Are appropriations, encumbrances, or lapsing issues relevant?	Budgetary accounting is control-focused and does not always match external reporting.
Reconcile presentation	Do fund-level amounts need conversion or explanation?	BAR often tests consistency between fund statements and government-wide reporting.

Basis Selection Checkpoints

Reporting context	Measurement focus	Basis of accounting
Governmental funds	Current financial resources.	Modified accrual.
Government-wide governmental activities	Economic resources.	Full accrual.
Proprietary funds	Economic resources.	Full accrual.
Fiduciary funds	Economic resources.	Full accrual.
Budgetary schedules	Legal budgetary control.	Budgetary basis or legally prescribed basis, depending on the facts.

Governmental Statement Checkpoints

Checkpoint	Exam use	What to avoid
Reporting layer	Decide whether the problem asks for fund statements, government-wide statements, or budgetary schedules.	Mixing measurement focus and basis across reporting layers.
Fund category	Classify the fund as governmental, proprietary, or fiduciary before selecting statements.	Using governmental-fund recognition rules for proprietary or fiduciary funds.
Statement type	Identify whether the statement reports financial position, activities, revenues and expenditures, cash flows, or budget comparison.	Preparing the right numbers in the wrong statement format.
Reconciliation	Convert fund-level modified-accrual information to government-wide accrual presentation when required.	Forgetting long-term assets, long-term liabilities, and accrual adjustments.
Disclosure and RSI	Separate basic financial statements, notes, required supplementary information, and budgetary schedules.	Treating all schedules as part of the same audited statement package.

How to Use This Chapter

Read this chapter after Chapter 19 so the statement mechanics have context.
Focus on which accounting basis applies to the statement being prepared.
Revisit it whenever a BAR problem mixes budgetary entries with formal financial statement presentation.

In this section

Converting Modified Accrual Information to Full Accrual Reporting
How BAR converts between modified-accrual and full-accrual governmental reporting views.
Recording Budgetary Accounting, Encumbrances, and Lapsing Authority
How BAR handles budgetary accounting, encumbrances, and lapsing in government settings.
Preparing the Main Governmental Fund Statements
How BAR prepares and interprets the core governmental fund statements.
Preparing Proprietary and Fiduciary Fund Statements
How BAR prepares the major proprietary and fiduciary fund statements.

Revised on Monday, June 15, 2026

19. Governmental Accounting Fundamentals

21. Reconciliations & Government-Wide Reporting

Browse Business Analysis and Reporting (BAR)