Created By: A Solution
Solution ManualforGovernment AndNot For Profit
Accounting Concepts And Practices9th Edition
MichaelH.Granof|Latest UpdatedVersion2025.A+
https://www.stuvia.com/user/asolution
,Created By: A Solution
Chapter 1
The Government and Not-For-Profit Environment
Questions for Review and Discussion
1. The critical distinction between for-profit businesses and not-for-
profits including governments is that businesses have profit as their main motive whereas the ot
hers have service. A primary purpose of financial reporting is to report on an entity‘s accompli
shments —
how well it achieved its objectives. Accordingly, the financial statements of businesses measur
e profitability, their key objective. Financial reports of governments and other not-for-
profits should not focus on profitability, since it is not a relevant objective. Ideally, therefore, t
hey should focus on other performance objectives, such as how well the organizations met their
service goals. In reality, however, the goal of reporting on how well they have achieved such
goals has proven difficult to attain and the financial reports have focused mainly on financially-
related data.
2. Governments and not-for-
profits are —governed‖ by the budget, whereas businesses are governed by the marketplace. Th
e budget is the key political and fiscal document of governments and not-for-
profits. It determines how an entity obtains its resources and how it allocates them. It encapsula
tes most key decisions of consequence made by the organization. In a government the budget is
not merely a managerial document; it is the law.
3.
Owing to the significance of the budget, constituents want assurance that the entity achi
eves its revenue estimates and complies with its spending mandates. They expect the financial
statements to report on how the budget was administered.
https://www.stuvia.com/user/asolution
,Created By: A Solution
4.
Interperiod equity is the concept that taxpayers of today pay for the services that they re
ceive and not shift the payment burden to taxpayers of the future. Financial reporting must indi
cate the extent to which interperiod equity has been achieved. Therefore, it must determine and
report upon the economic costs of the services performed (not merely the cash costs) and of th
e taxpayers‘ contribution toward covering those costs.
5. The matching concept may be less relevant for governments and not-for-
profits than for businesses because there may be no connection between revenues generated an
d the quantity, quality or cost of services performed. An increase in the demand for, or cost of,
services provided by a homeless shelter would not necessarily result in an increase in the amou
nt of donations that it receives. Of course, governments and not- for-
profits are concerned with measuring interperiod equity and for that purpose the matching conc
ept may be very relevant.
6.
Governments must maintain an accounting system that assures that restricted resources
are not inadvertently expended for inappropriate purposes. Moreover, statement users may need
separate information on the restricted resources by category of restriction and the unrestricted r
esources. In practice, these requirements have led governments to adopt a system of —fund‖ ac
counting and reporting.
7.
Even governments within the same category may engage in different types of activities.
For example, some cities operate a school system whereas others do not. Those that are not wit
hin the same category may have relatively little in common. For example, a state government s
hares few characteristics with a city.
8.
If a government has the power to tax, then it has command over, and access to, resource
s. Therefore, its fiscal well-
https://www.stuvia.com/user/asolution
, Created By: A Solution
being cannot be assessed merely by measuring the assets that it —owns.‖ For example,
the fiscal condition of a city should incorporate the wealth of the residents and businesses
within the city, their earning capacity, and the city‘s willingness to exploit its tax base.
9. Many governments budget on a cash or near-
cash basis. However, the cash basis of accounting does not provide adequate information with
which to assess interperiod equity. Financial statements that satisfy the objective of reporting o
n interperiod equity may not satisfy that of reporting on budgetary compliance. Moreover, state
ments that report on either interperiod equity or budgetary compliance are unlikely to provide s
ufficient information with which to assess service efforts and accomplishments.
10.
Measures of service efforts and accomplishments are more significant in governments a
nd not-for-
profits because their objectives are to provide service. By contrast, the objective of businesses i
s to earn a profit. Therefore, businesses can report on their accomplishments by reporting on th
eir profitability. Governments and not-for-
profits must report on other measures of accomplishment.
11.
The FASB influences generally accepted accounting principles of governments in two k
ey ways. First, FASB pronouncements are included in the GASB —hierarchy‖ of GAAP. FAS
B pronouncements that the GASB has specifically made applicable to governments are include
d in the highest category; those that the GASB has not specifically adopted are included in the
lowest category. Second, the business-
type activities of governments are required (with a few exceptions) to follow the business acco
unting principles as set forth by the FASB.
2-2
12.
It is more difficult to distinguish between internal and external users in governments tha
https://www.stuvia.com/user/asolution
Solution ManualforGovernment AndNot For Profit
Accounting Concepts And Practices9th Edition
MichaelH.Granof|Latest UpdatedVersion2025.A+
https://www.stuvia.com/user/asolution
,Created By: A Solution
Chapter 1
The Government and Not-For-Profit Environment
Questions for Review and Discussion
1. The critical distinction between for-profit businesses and not-for-
profits including governments is that businesses have profit as their main motive whereas the ot
hers have service. A primary purpose of financial reporting is to report on an entity‘s accompli
shments —
how well it achieved its objectives. Accordingly, the financial statements of businesses measur
e profitability, their key objective. Financial reports of governments and other not-for-
profits should not focus on profitability, since it is not a relevant objective. Ideally, therefore, t
hey should focus on other performance objectives, such as how well the organizations met their
service goals. In reality, however, the goal of reporting on how well they have achieved such
goals has proven difficult to attain and the financial reports have focused mainly on financially-
related data.
2. Governments and not-for-
profits are —governed‖ by the budget, whereas businesses are governed by the marketplace. Th
e budget is the key political and fiscal document of governments and not-for-
profits. It determines how an entity obtains its resources and how it allocates them. It encapsula
tes most key decisions of consequence made by the organization. In a government the budget is
not merely a managerial document; it is the law.
3.
Owing to the significance of the budget, constituents want assurance that the entity achi
eves its revenue estimates and complies with its spending mandates. They expect the financial
statements to report on how the budget was administered.
https://www.stuvia.com/user/asolution
,Created By: A Solution
4.
Interperiod equity is the concept that taxpayers of today pay for the services that they re
ceive and not shift the payment burden to taxpayers of the future. Financial reporting must indi
cate the extent to which interperiod equity has been achieved. Therefore, it must determine and
report upon the economic costs of the services performed (not merely the cash costs) and of th
e taxpayers‘ contribution toward covering those costs.
5. The matching concept may be less relevant for governments and not-for-
profits than for businesses because there may be no connection between revenues generated an
d the quantity, quality or cost of services performed. An increase in the demand for, or cost of,
services provided by a homeless shelter would not necessarily result in an increase in the amou
nt of donations that it receives. Of course, governments and not- for-
profits are concerned with measuring interperiod equity and for that purpose the matching conc
ept may be very relevant.
6.
Governments must maintain an accounting system that assures that restricted resources
are not inadvertently expended for inappropriate purposes. Moreover, statement users may need
separate information on the restricted resources by category of restriction and the unrestricted r
esources. In practice, these requirements have led governments to adopt a system of —fund‖ ac
counting and reporting.
7.
Even governments within the same category may engage in different types of activities.
For example, some cities operate a school system whereas others do not. Those that are not wit
hin the same category may have relatively little in common. For example, a state government s
hares few characteristics with a city.
8.
If a government has the power to tax, then it has command over, and access to, resource
s. Therefore, its fiscal well-
https://www.stuvia.com/user/asolution
, Created By: A Solution
being cannot be assessed merely by measuring the assets that it —owns.‖ For example,
the fiscal condition of a city should incorporate the wealth of the residents and businesses
within the city, their earning capacity, and the city‘s willingness to exploit its tax base.
9. Many governments budget on a cash or near-
cash basis. However, the cash basis of accounting does not provide adequate information with
which to assess interperiod equity. Financial statements that satisfy the objective of reporting o
n interperiod equity may not satisfy that of reporting on budgetary compliance. Moreover, state
ments that report on either interperiod equity or budgetary compliance are unlikely to provide s
ufficient information with which to assess service efforts and accomplishments.
10.
Measures of service efforts and accomplishments are more significant in governments a
nd not-for-
profits because their objectives are to provide service. By contrast, the objective of businesses i
s to earn a profit. Therefore, businesses can report on their accomplishments by reporting on th
eir profitability. Governments and not-for-
profits must report on other measures of accomplishment.
11.
The FASB influences generally accepted accounting principles of governments in two k
ey ways. First, FASB pronouncements are included in the GASB —hierarchy‖ of GAAP. FAS
B pronouncements that the GASB has specifically made applicable to governments are include
d in the highest category; those that the GASB has not specifically adopted are included in the
lowest category. Second, the business-
type activities of governments are required (with a few exceptions) to follow the business acco
unting principles as set forth by the FASB.
2-2
12.
It is more difficult to distinguish between internal and external users in governments tha
https://www.stuvia.com/user/asolution
