SOLUTION MANUALFOR GOVERNMENT AND NOT FOR
PROFITACCOUNTING CONCEPTS AND PRACTICES 9TH
EDITION MICHAEL H.GRANOF|LATEST UPDATED
VERSION2024.A+
https://www.stuvia.com/user/asolution
, Chapter311
The31Government31and31Not-For-Profit31Environment
Questions31 for31 Review31 and31 Discussion
1. The31 critical31 distinction31 between31 for-profit31 businesses31 and31 not-for-
profits31including31governments31is31that31businesses31have31profit31as31their31main31motive31w
hereas31the31ot31hers31have31service.31A31primary31purpose31of31financial31reporting31is31to31rep
ort31on31an31entity‘s31accompli31shments31—
how31well31it31achieved31its31objectives.31Accordingly,31the31financial31statements31of31busines
ses31measur3 1 e31profitability,31their31key31objective.31Financial31reports31of31governments31and
31other31not-for-
profits31should31not31focus31on31profitability,31since31it31is31not31a31relevant31objective.31Ideally
,31therefore,31t31hey31should31focus31on31other31performance31objectives,31such31as31how31well3
1the31organizations31met31their31service31goals.31In31reality,31however,31the31goal31of31reporting
31on31how31well31they31have31achieved31such31goals31has31proven31difficult31to31attain31and31th
e31financial31reports31have31focused31mainly31on31financially-31related31data.
2. Governments31 and31 not-for-
profits31are31―governed‖31by31the31budget,31whereas31businesses31are31governed31by31the31mark
etplace.31Th3 1 e31budget31is31the31key31political31and31fiscal31document31of31governments31and31
not-for-
profits.31It31determines31how31an31entity31obtains31its31resources31and31how31it31allocates31them.3
1It31encapsula31tes31most31key31decisions31of31consequence31made31by31the31organization.31In31a3
1government31the31budget31is31not31merely31a31managerial31document;31it31is31the31law.
3.
Owing31 to31 the31 significance31 of31 the31 budget,31 constituents31 want31 assurance31 that31 the31 e
ntity31 achi
eves31its31revenue31estimates31and31complies31with31its31spending31mandates.31They31expect31the31fi
nancial31statements31to31report31on31how31the31budget31was31administered.
https://www.stuvia.com/user/asolution
,4.
Interperiod31 equity31 is31 the31 concept31 that31 taxpayers31 of31 today31 pay31 for31 the31 services31
that31 they31 re
ceive31and31not31shift31the31payment31burden31to31taxpayers31of31the31future.31Financial31reporti
ng31must31indi31cate31the31extent31to31which31interperiod31equity31has31been31achieved.31Therefo
re,31it31must31determine31and31report31 upon31 the31 economic31 costs31 of31 the31 services31 perform
ed3 1 (not31 merely31 the31 cash31 costs)31 and31 of31 th31e31taxpayers‘31contribution31toward31coverin
g31those31costs.
5. The31 matching31 concept31 may31 be31 less31 relevant31 for31 governments31 and31 not-for-
profits31than31for31businesses31because31there31may31be31no31connection31between31revenues31ge
nerated31an3 1 d31the31quantity,31quality31or31cost31of31services31performed.31An31increase31in31t
he31demand31for,31or31cost31of,31services31provided31by31a31homeless31shelter31would31not31nece
ssarily31result31in31an31increase31in31the31amou31nt31of31donations31that31it31receives.31Of31cours
e,31governments31and31not-31for-
profits31are31concerned31with31measuring31interperiod31equity31and31for31that31purpose31the31mat
ching31conc31ept31may31be31very31relevant.
6.
Governments31 must31 maintain31 an31 accounting31 system31 that31 assures31 that31 restricted31 res
ources
are31not31inadvertently31expended31for31inappropriate31purposes.31Moreover,31statement31users31
may31need31separate31information31on31the31restricted31resources31by31category31of31restriction31
and31the31unrestricted31r31esources.31In31practice,31these31requirements31have31led31governments3
1to31adopt31a31system31of31―fund‖31ac31counting31and31reporting.
7.
Even31 governments31 within31 the31 same31 category31 may31 engage31 in31 different31 types31 of31
activities.
For31example,31some31cities31operate31a31school31system31whereas31others31do31not.31Those31tha
t31are31not31wit31hin31the31same31category31may31have31relatively31little31in31common.31For31exa
mple,31a31state31government31s31hares31few31characteristics31with31a31city.
https://www.stuvia.com/user/asolution
, 8.
If31 a31 government31 has31 the31 power31 to31 tax,31 then31 it31 has31 command31 over,31 and31 access
31 to,31 resource
s.31 Therefore,31 its31 fiscal31 well-
https://www.stuvia.com/user/asolution
PROFITACCOUNTING CONCEPTS AND PRACTICES 9TH
EDITION MICHAEL H.GRANOF|LATEST UPDATED
VERSION2024.A+
https://www.stuvia.com/user/asolution
, Chapter311
The31Government31and31Not-For-Profit31Environment
Questions31 for31 Review31 and31 Discussion
1. The31 critical31 distinction31 between31 for-profit31 businesses31 and31 not-for-
profits31including31governments31is31that31businesses31have31profit31as31their31main31motive31w
hereas31the31ot31hers31have31service.31A31primary31purpose31of31financial31reporting31is31to31rep
ort31on31an31entity‘s31accompli31shments31—
how31well31it31achieved31its31objectives.31Accordingly,31the31financial31statements31of31busines
ses31measur3 1 e31profitability,31their31key31objective.31Financial31reports31of31governments31and
31other31not-for-
profits31should31not31focus31on31profitability,31since31it31is31not31a31relevant31objective.31Ideally
,31therefore,31t31hey31should31focus31on31other31performance31objectives,31such31as31how31well3
1the31organizations31met31their31service31goals.31In31reality,31however,31the31goal31of31reporting
31on31how31well31they31have31achieved31such31goals31has31proven31difficult31to31attain31and31th
e31financial31reports31have31focused31mainly31on31financially-31related31data.
2. Governments31 and31 not-for-
profits31are31―governed‖31by31the31budget,31whereas31businesses31are31governed31by31the31mark
etplace.31Th3 1 e31budget31is31the31key31political31and31fiscal31document31of31governments31and31
not-for-
profits.31It31determines31how31an31entity31obtains31its31resources31and31how31it31allocates31them.3
1It31encapsula31tes31most31key31decisions31of31consequence31made31by31the31organization.31In31a3
1government31the31budget31is31not31merely31a31managerial31document;31it31is31the31law.
3.
Owing31 to31 the31 significance31 of31 the31 budget,31 constituents31 want31 assurance31 that31 the31 e
ntity31 achi
eves31its31revenue31estimates31and31complies31with31its31spending31mandates.31They31expect31the31fi
nancial31statements31to31report31on31how31the31budget31was31administered.
https://www.stuvia.com/user/asolution
,4.
Interperiod31 equity31 is31 the31 concept31 that31 taxpayers31 of31 today31 pay31 for31 the31 services31
that31 they31 re
ceive31and31not31shift31the31payment31burden31to31taxpayers31of31the31future.31Financial31reporti
ng31must31indi31cate31the31extent31to31which31interperiod31equity31has31been31achieved.31Therefo
re,31it31must31determine31and31report31 upon31 the31 economic31 costs31 of31 the31 services31 perform
ed3 1 (not31 merely31 the31 cash31 costs)31 and31 of31 th31e31taxpayers‘31contribution31toward31coverin
g31those31costs.
5. The31 matching31 concept31 may31 be31 less31 relevant31 for31 governments31 and31 not-for-
profits31than31for31businesses31because31there31may31be31no31connection31between31revenues31ge
nerated31an3 1 d31the31quantity,31quality31or31cost31of31services31performed.31An31increase31in31t
he31demand31for,31or31cost31of,31services31provided31by31a31homeless31shelter31would31not31nece
ssarily31result31in31an31increase31in31the31amou31nt31of31donations31that31it31receives.31Of31cours
e,31governments31and31not-31for-
profits31are31concerned31with31measuring31interperiod31equity31and31for31that31purpose31the31mat
ching31conc31ept31may31be31very31relevant.
6.
Governments31 must31 maintain31 an31 accounting31 system31 that31 assures31 that31 restricted31 res
ources
are31not31inadvertently31expended31for31inappropriate31purposes.31Moreover,31statement31users31
may31need31separate31information31on31the31restricted31resources31by31category31of31restriction31
and31the31unrestricted31r31esources.31In31practice,31these31requirements31have31led31governments3
1to31adopt31a31system31of31―fund‖31ac31counting31and31reporting.
7.
Even31 governments31 within31 the31 same31 category31 may31 engage31 in31 different31 types31 of31
activities.
For31example,31some31cities31operate31a31school31system31whereas31others31do31not.31Those31tha
t31are31not31wit31hin31the31same31category31may31have31relatively31little31in31common.31For31exa
mple,31a31state31government31s31hares31few31characteristics31with31a31city.
https://www.stuvia.com/user/asolution
, 8.
If31 a31 government31 has31 the31 power31 to31 tax,31 then31 it31 has31 command31 over,31 and31 access
31 to,31 resource
s.31 Therefore,31 its31 fiscal31 well-
https://www.stuvia.com/user/asolution
