Which of the following is not true regarding proprietary funds?

• A. The difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources is called net assets.
• B. Proprietary funds use accrual basis of accounting.
• C. A statement of net position is presented.
• D. The difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources is called net position.

Answer: (A)

The idea being tested is the terminology used for the balance of proprietary funds. In government accounting, proprietary funds present a statement of net position, not a balance sheet labeled with net assets. The balance is determined by taking assets plus deferred outflows of resources, subtracting liabilities plus deferred inflows of resources, which yields net position. This is the correct way GASB presents the fund’s financial position for proprietary funds. The term net assets is used in other contexts (such as non-governmental entities or not-for-profits) and is not the label GASB uses here, so describing the balance as net assets is not accurate. The other statements are true: proprietary funds use accrual accounting, a statement of net position is presented, and the net position is the result of that Asset plus deferred outflows minus Liabilities minus deferred inflows calculation.