What does deferred inflow of resources mean on the CPA exam?
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Deferred inflow of resources. An acquisition of net assets that belongs to a future period, so it sits between liabilities and equity on a government's statement of net position rather than in either.
Defined against GASB Concepts Statement 4.
Worked example
A county's fiscal year ends June 30. In May, Year 1, it levies $12,000,000 of property taxes to finance the fiscal year that begins July 1, Year 1, and its enforceable legal claim to those taxes arises on that July 1. Some owners pay early, and by June 30, Year 1, the county has collected $1,500,000.
How does the county report the $1,500,000 at June 30, Year 1?
- Property taxes are imposed nonexchange revenue, recognized in the period for which they are levied, which here is the year starting July 1.
- The cash has arrived, but it belongs to a period that has not begun, and the county owes nothing back to the owners, so it is neither revenue nor a liability.
- Under current GASB standards the $1,500,000 goes in the deferred inflows section, between liabilities and net position, and turns into revenue in the fiscal year beginning July 1, Year 1.
Answer: The county reports a $1,500,000 deferred inflow of resources at June 30, Year 1. The other $10,500,000 is not recognized yet, because the enforceable claim does not arise until July 1.
The trap: Recording the advance collection as unearned revenue, a liability, as a business would. A government has no obligation to return taxes paid early, so the amount is a deferred inflow rather than a liability.
Based on GASB Statement No. 33; GASB Statement No. 65.
Which CPA exam sections use deferred inflow of resources?
Deferred inflow of resources appears in the BAR section of the CPA exam.
Related terms
- deferred outflow of resources: A consumption of net assets that belongs to a future period.
- net position: A government's assets plus deferred outflows, less liabilities and deferred inflows.
- net assets: Assets less liabilities.
- temporary difference: A difference between the tax basis of an asset or liability and its reported amount that will produce taxable or deductible amounts in future years.
- balance sheet: A snapshot at one date of what the entity owns, what it owes, and the owners' residual.
- total liabilities: Everything the entity owes, added up.