Which principle is NOT applicable to governmental funds?

The principle that is not applicable to governmental funds is the full accrual basis of accounting. Governmental funds primarily use the modified accrual basis of accounting, which is designed to reflect the short-term financial position and results of operations. This means that revenue is recognized when it is both measurable and available to finance expenditures of the current period. Expenditures are recorded when liabilities are incurred, except for certain long-term liabilities.

In contrast, the full accrual basis of accounting recognizes revenues when they are earned and expenses when they are incurred, regardless of the timing of cash flows. This approach is more commonly associated with enterprise funds and proprietary funds within the governmental accounting framework, which focus on long-term economic resources rather than just current financial resources.

The modified accrual basis, current financial resources measurement focus, and encumbrance accounting are fundamental concepts within the context of governmental funds. Encumbrance accounting, for instance, helps governments track expenditures by reserving a portion of the budget for future commitments, which is a key practice in managing public funds.

Thus, the full accrual basis of accounting does not align with the operational principles and focus of governmental funds, making it the correct answer in this context.