TEST BANKFOR
INTRODUCTION TO
FUND
ACCOUNTING 4TH
EDITION NORVELLE
, Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical governmental or not-for-profit entity is to earn a profit.
2. A government’s budget may be backed by the force of law.
3. Governmental entities have no need for an accounting system.
4. A government’s internal managers rely on general purpose financial statements for a
considerable amount of information about their government.
5. Governments and not-for-profits may never engage in business-type activities.
6. Lenders use the financial statements of governments and not-for profits just as they would
those of businesses, that is, to help assess the borrower’s credit-worthiness.
7. Financial statements, no matter how prepared, do not directly affect the economic worth of
an entity.
8. The Financial Accounting Standards Advisory Board’s standards do not apply to the
federal Department of Treasury.
9. Governments may be subject to the same pressures that led to accounting scandals like
Enron.
10. The Governmental Accounting Standards Board establishes generally accepted accounting
principles for all state and local government entities, as well as all not-for-profit entities.
MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governmental entities from business entities is
a) The need to generate revenues equal to or in excess of expenditures/expenses.
b) The importance of the budget in the governing process.
c) The need to provide goods or services.
d) The correlation between revenues generated and demand for goods or services.
2. A primary characteristic that distinguishes not-for-profit entities from business entities is
a) The need to generate revenues equal to or in excess of expenditures/expenses.
b) The importance of the budget in the governing process.
c) The need to provide goods or services.
d) The correlation between revenues generated and demand for goods or services.
Granof Test Bank Chapter 1 Page 1
,3. Which of the following characteristics distinguishes a governmental or not-for-profit entity
from a business entity?
a) There is always a direct link between revenues generated and
expenditures/expenses incurred.
b) Capital assets are used to produce revenues and save costs.
c) Revenues are always indicative of demand for goods and services.
d) The mission of the entity will determine the goods or services provided.
4. The most significant financial document provided by a governmental entity is the
a) The balance sheet.
b) The operating statement.
c) The operating budget.
d) The cash flow statement.
5. Which of the following statements is true?
a) Governments may engage in activities similar to activities engaged in by forprofit
entities.
b) There are a limited number of different types of governments.
c) All governmental entities engage in the same activities.
d) Managers may have a long-term focus and thereby sacrifice the short-term liquidity of
the entity.
6. Which of the following activities is NOT an activity in which a governmental entity might
engage?
a) Selling electric power.
b) Operating a golf course.
c) Operating a bookstore.
d) All of the above are activities that might be carried out by a government.
7. In which of the following activities is a not-for-profit entity least likely to engage?
a) Providing educational services.
b) Providing health-care services.
c) Providing for terrorism defense.
d) Retail sales of cookies.
8. Which of the following can be affected by GAAP?
a) Legal ability to issue bonds.
b) Ability to balance the budget.
c) Amount reported as employee pension plan contributions.
d) Claims and judgments settled.
9. Which of the following characteristics is unique to a governmental entity?
a) The ability to have activities financed with tax-exempt debt.
b) The power to impose fees.
c) The ability to issue tax-exempt debt.
d) The ability to have activities financed by Federal grants.
Granof Test Bank Chapter 1 Page 2
, 10. To obtain a comprehensive understanding of a government’s fiscal health, a financial analyst
should obtain an understanding of which of the following?
a) All of the resources owned by the governmental entity.
b) All of the resources which may be summoned by a governmental entity.
c) Demographic data about the residents served by the governmental entity.
d) All of the above.
11. Which of the following is common to both governments and not-for-profit entities but
distinguishes these entities from for-profit entities?
a) The budget is a legal, financial document.
b) Revenues are usually indicative of demand for goods or services.
c) There is direct matching of revenues and expenses.
d) There are no defined ownership interests.
12. Which of the following is NOT a purpose of external financial reporting by governments?
External financial reports should allow users to
a) Assess financial condition.
b) Compare actual results with the budget.
c) Assess the ability of elected officials to effectively manage people.
d) Evaluate efficiency and effectiveness.
13. Which of the following is NOT a reason why users need governmental and not-for-profit
external financial statements?
a) To determine the ability of the entity to meet its obligations.
b) To determine the ability of the entity to continue to provide services.
c) To predict future fiscal solvency.
d) To evaluate the overall profitability of the entity.
14. Users of government financial statements should be interested in information about
compliance with laws and regulations for which of the following reasons?
a) To determine if the entity has complied with bond covenants.
b) To determine if the entity has complied with taxing limitations.
c) To determine if the entity has complied with donor restrictions on the use of funds.
d) To determine all of the above.
15. Which of the following is NOT generally considered a main user of government and not-
forprofit entity external financial statements?
a) Investors and creditors.
b) Taxpayers.
c) Donors.
d) Internal managers.
16. Which of the following is a probable use a donor would make of the external financial
statements of a not-for-profit entity?
a) To determine the proportion of entity resources directed to programs as opposed
to fund-raising.
b) To determine the creditworthiness of the entity for investment purposes.
Granof Test Bank Chapter 1 Page 3
INTRODUCTION TO
FUND
ACCOUNTING 4TH
EDITION NORVELLE
, Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical governmental or not-for-profit entity is to earn a profit.
2. A government’s budget may be backed by the force of law.
3. Governmental entities have no need for an accounting system.
4. A government’s internal managers rely on general purpose financial statements for a
considerable amount of information about their government.
5. Governments and not-for-profits may never engage in business-type activities.
6. Lenders use the financial statements of governments and not-for profits just as they would
those of businesses, that is, to help assess the borrower’s credit-worthiness.
7. Financial statements, no matter how prepared, do not directly affect the economic worth of
an entity.
8. The Financial Accounting Standards Advisory Board’s standards do not apply to the
federal Department of Treasury.
9. Governments may be subject to the same pressures that led to accounting scandals like
Enron.
10. The Governmental Accounting Standards Board establishes generally accepted accounting
principles for all state and local government entities, as well as all not-for-profit entities.
MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governmental entities from business entities is
a) The need to generate revenues equal to or in excess of expenditures/expenses.
b) The importance of the budget in the governing process.
c) The need to provide goods or services.
d) The correlation between revenues generated and demand for goods or services.
2. A primary characteristic that distinguishes not-for-profit entities from business entities is
a) The need to generate revenues equal to or in excess of expenditures/expenses.
b) The importance of the budget in the governing process.
c) The need to provide goods or services.
d) The correlation between revenues generated and demand for goods or services.
Granof Test Bank Chapter 1 Page 1
,3. Which of the following characteristics distinguishes a governmental or not-for-profit entity
from a business entity?
a) There is always a direct link between revenues generated and
expenditures/expenses incurred.
b) Capital assets are used to produce revenues and save costs.
c) Revenues are always indicative of demand for goods and services.
d) The mission of the entity will determine the goods or services provided.
4. The most significant financial document provided by a governmental entity is the
a) The balance sheet.
b) The operating statement.
c) The operating budget.
d) The cash flow statement.
5. Which of the following statements is true?
a) Governments may engage in activities similar to activities engaged in by forprofit
entities.
b) There are a limited number of different types of governments.
c) All governmental entities engage in the same activities.
d) Managers may have a long-term focus and thereby sacrifice the short-term liquidity of
the entity.
6. Which of the following activities is NOT an activity in which a governmental entity might
engage?
a) Selling electric power.
b) Operating a golf course.
c) Operating a bookstore.
d) All of the above are activities that might be carried out by a government.
7. In which of the following activities is a not-for-profit entity least likely to engage?
a) Providing educational services.
b) Providing health-care services.
c) Providing for terrorism defense.
d) Retail sales of cookies.
8. Which of the following can be affected by GAAP?
a) Legal ability to issue bonds.
b) Ability to balance the budget.
c) Amount reported as employee pension plan contributions.
d) Claims and judgments settled.
9. Which of the following characteristics is unique to a governmental entity?
a) The ability to have activities financed with tax-exempt debt.
b) The power to impose fees.
c) The ability to issue tax-exempt debt.
d) The ability to have activities financed by Federal grants.
Granof Test Bank Chapter 1 Page 2
, 10. To obtain a comprehensive understanding of a government’s fiscal health, a financial analyst
should obtain an understanding of which of the following?
a) All of the resources owned by the governmental entity.
b) All of the resources which may be summoned by a governmental entity.
c) Demographic data about the residents served by the governmental entity.
d) All of the above.
11. Which of the following is common to both governments and not-for-profit entities but
distinguishes these entities from for-profit entities?
a) The budget is a legal, financial document.
b) Revenues are usually indicative of demand for goods or services.
c) There is direct matching of revenues and expenses.
d) There are no defined ownership interests.
12. Which of the following is NOT a purpose of external financial reporting by governments?
External financial reports should allow users to
a) Assess financial condition.
b) Compare actual results with the budget.
c) Assess the ability of elected officials to effectively manage people.
d) Evaluate efficiency and effectiveness.
13. Which of the following is NOT a reason why users need governmental and not-for-profit
external financial statements?
a) To determine the ability of the entity to meet its obligations.
b) To determine the ability of the entity to continue to provide services.
c) To predict future fiscal solvency.
d) To evaluate the overall profitability of the entity.
14. Users of government financial statements should be interested in information about
compliance with laws and regulations for which of the following reasons?
a) To determine if the entity has complied with bond covenants.
b) To determine if the entity has complied with taxing limitations.
c) To determine if the entity has complied with donor restrictions on the use of funds.
d) To determine all of the above.
15. Which of the following is NOT generally considered a main user of government and not-
forprofit entity external financial statements?
a) Investors and creditors.
b) Taxpayers.
c) Donors.
d) Internal managers.
16. Which of the following is a probable use a donor would make of the external financial
statements of a not-for-profit entity?
a) To determine the proportion of entity resources directed to programs as opposed
to fund-raising.
b) To determine the creditworthiness of the entity for investment purposes.
Granof Test Bank Chapter 1 Page 3
