CPFO Accounting Practice Exam 2025 – The All-in-One Resource to Master Your Certification!

Under the modified accrual basis, investment income is recognized when it is measurable and available for payment. Statement A is accurate because it highlights a key aspect of the modified accrual basis: changes in the fair value of investments are recognized as revenue when those investments are sold, provided the sale occurs within the availability period. The availability period refers to the time frame in which revenue must be available to be used or spent, typically within the fiscal year. This principle ensures that only realized gains—those derived from transactions that have actually occurred—are reported as revenue.

Understanding this recognition process is crucial in government accounting because it aligns the revenue recognition with the timing of cash flows, ensuring that only income that can be spent or appropriated in the current period is recorded.

The other statements do not accurately capture the nuances of recognizing investment income under the modified accrual basis. For example, while it is important to distinguish realized from unrealized revenues in general accounting practices, the emphasis in A is more specific to the timing of revenue recognition, which is more applicable in the context of government financial reporting. Negative investment income being reported as revenue does not conform to the standard reporting norms and netting various components of investment income may not be permissible, as it could obscure the true