Created By: A Solution
Solution Manual for Government And Not For Profit Accounting
Concepts And Practices 9th Edition Michael H. Granof|Latest
Updated Version 2026. A+
x
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,Created By: A Solution
Chapter 1 x
The Government and Not-For-Profit Environment
x x x x
QuestionsxforxReviewxandxDiscussion
x
1. Thexcriticalxdistinctionxbetweenxfor-profitxbusinessesxandxnot-for-
profitsxincludingxgovernmentsxisxthatxbusinessesxhavexprofitxasxtheirxmainxmotivexwhereasxthexother
sxhavexservice.xAxprimaryxpurposexofxfinancialxreportingxisxtoxreportxonxanxentity‘sxaccomplishment
sx—
x howxwellxitxachievedxitsxobjectives.xAccordingly,xthexfinancialxstatementsxofxbusinessesxmeasurexp
rofitability,xtheirxkeyxobjective.xFinancialxreportsxofxgovernmentsxandxotherxnot-for-
profitsxshouldxnotxfocusxonxprofitability,xsincexitxisxnotxaxrelevantxobjective.xIdeally,xtherefore,xtheyx
shouldxfocusxonxotherxperformancexobjectives,xsuchxasxhowxwellxthexorganizationsxmetxtheirxservic
exgoals.xInxreality,xhowever,xthexgoalxofxreportingxonxhowxwellxtheyxhavexachievedxsuchxgoalsxhasxp
rovenxdifficultxtoxattainxandxthexfinancialxreportsxhavexfocusedxmainlyxonxfinancially-xrelatedxdata.
2. Governmentsxandxnot-for-
profitsxarex―governed‖xbyxthexbudget,xwhereasxbusinessesxarexgovernedxbyxthexmarketplace.xThexb
udgetxisxthexkeyxpoliticalxandxfiscalxdocumentxofxgovernmentsxandxnot-for-
profits.xItxdeterminesxhowxanxentityxobtainsxitsxresourcesxandxhowxitxallocatesxthem.xItxencapsulatesx
mostxkeyxdecisionsxofxconsequencexmadexbyxthexorganization.xInxaxgovernmentxthexbudgetxisxnotxm
erelyxaxmanagerialxdocument;xitxisxthexlaw.
3.
Owingxtoxthexsignificancexofxthexbudget,xconstituentsxwantxassurancexthatxthexentityxachieve
sxitsxrevenuexestimatesxandxcompliesxwithxitsxspendingxmandates.xTheyxexpectxthexfinancialxstateme
ntsxtoxreportxonxhowxthexbudgetxwasxadministered.
4.
Interperiodxequityxisxthexconceptxthatxtaxpayersxofxtodayxpayxforxthexservicesxthatxtheyxrecei
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vexandxnotxshiftxthexpaymentxburdenxtoxtaxpayersxofxthexfuture.xFinancialxreportingxmustxindicatexth
exextentxtoxwhichxinterperiodxequityxhasxbeenxachieved.xTherefore,xitxmustxdeterminexandxreportxup
onxthexeconomicxcostsxofxthexservicesxperformedx(notxmerelyxthexcashxcosts)xandxofxthextaxpayers‘xc
ontributionxtowardxcoveringxthosexcosts.
5. Thexmatchingxconceptxmayxbexlessxrelevantxforxgovernmentsxandxnot-for-
profitsxthanxforxbusinessesxbecausextherexmayxbexnoxconnectionxbetweenxrevenuesxgeneratedxandxth
exquantity,xqualityxorxcostxofxservicesxperformed.xAnxincreasexinxthexdemandxfor,xorxcostxof,xservice
sxprovidedxbyxaxhomelessxshelterxwouldxnotxnecessarilyxresultxinxanxincreasexinxthexamountxofxdonat
ionsxthatxitxreceives.xOfxcourse,xgovernmentsxandxnot-xfor-
profitsxarexconcernedxwithxmeasuringxinterperiodxequityxandxforxthatxpurposexthexmatchingxconcept
x mayxbexveryxrelevant.
6.
Governmentsxmustxmaintainxanxaccountingxsystemxthatxassuresxthatxrestrictedxresourcesxare
x notxinadvertentlyxexpendedxforxinappropriatexpurposes.xMoreover,xstatementxusersxmayxneedxsepar
atexinformationxonxthexrestrictedxresourcesxbyxcategoryxofxrestrictionxandxthexunrestrictedxresources
.xInxpractice,xthesexrequirementsxhavexledxgovernmentsxtoxadoptxaxsystemxofx―fund‖xaccountingxan
dxreporting.
7.
Evenxgovernmentsxwithinxthexsamexcategoryxmayxengagexinxdifferentxtypesxofxactivities.xFo
rxexample,xsomexcitiesxoperatexaxschoolxsystemxwhereasxothersxdoxnot.xThosexthatxarexnotxwithinxthe
x samexcategoryxmayxhavexrelativelyxlittlexinxcommon.xForxexample,xaxstatexgovernmentxsharesxfewx
characteristicsxwithxaxcity.
8.
Ifxaxgovernmentxhasxthexpowerxtoxtax,xthenxitxhasxcommandxover,xandxaccessxto,xresources.xT
herefore,xitsxfiscalxwell-
beingxcannotxbexassessedxmerelyxbyxmeasuringxthexxxassetsxxxthatxxxitxxx―owns.‖xxForxxxexample,xxxthexx
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fiscalxxconditionxxofxxaxxcityxxshouldxincorporatexthexwealthxofxthexresidentsxandxbusinessesxwithinxth
excity,xtheirxearningxcapacity,xandxthexcity‘sxwillingnessxtoxexploitxitsxtaxxbase.
9. Manyxgovernmentsxbudgetxonxaxcashxorxnear-
cashxbasis.xHowever,xthexcashxbasisxofxaccountingxdoesxnotxprovidexadequatexinformationxwithxwhi
chxtoxassessxinterperiodxequity.xFinancialxstatementsxthatxsatisfyxthexobjectivexofxreportingxonxinterp
eriodxequityxmayxnotxsatisfyxthatxofxreportingxonxbudgetaryxcompliance.xMoreover,xstatementsxthatx
reportxonxeitherxinterperiodxequityxorxbudgetaryxcompliancexarexunlikelyxtoxprovidexsufficientxinfor
mationxwithxwhichxtoxassessxservicexeffortsxandxaccomplishments.
10.
Measuresxofxservicexeffortsxandxaccomplishmentsxarexmorexsignificantxinxgovernmentsxandx
not-for-
profitsxbecausextheirxobjectivesxarextoxprovidexservice.xByxcontrast,xthexobjectivexofxbusinessesxisxto
x earnxaxprofit.xTherefore,xbusinessesxcanxreportxonxtheirxaccomplishmentsxbyxreportingxonxtheirxprof
itability.xGovernmentsxandxnot-for-profitsxmustxreportxonxotherxmeasuresxofxaccomplishment.
11.
ThexFASBxinfluencesxgenerallyxacceptedxaccountingxprinciplesxofxgovernmentsxinxtwoxkeyx
ways.xFirst,xFASBxpronouncementsxarexincludedxinxthexGASBx―hierarchy‖xofxGAAP.xFASBxpron
ouncementsxthatxthexGASBxhasxspecificallyxmadexapplicablextoxgovernmentsxarexincludedxinxthexhi
ghestxcategory;xthosexthatxthexGASBxhasxnotxspecificallyxadoptedxarexincludedxinxthexlowestxcatego
ry.xSecond,xthexbusiness-
typexactivitiesxofxgovernmentsxarexrequiredx(withxaxfewxexceptions)xtoxfollowxthexbusinessxaccounti
ngxprinciplesxasxsetxforthxbyxthexFASB.
2-2
x 12.
Itxisxmorexdifficultxtoxdistinguishxbetweenxinternalxandxexternalxusersxinxgovernmentsxthanxi
nxbusinessesxbecausexconstituents,xsuchxasxtaxpayers,xmayxplayxsignificantxrolesxinxestablishingxpol
iciesxthatxarexoftenxconsideredxwithinxthexrealmxofxmanagers.xAlso,xlegislatorsxarexinternalxtoxthexext
https://www.stuvia.com/user/asolution
Solution Manual for Government And Not For Profit Accounting
Concepts And Practices 9th Edition Michael H. Granof|Latest
Updated Version 2026. A+
x
https://www.stuvia.com/user/asolution
,Created By: A Solution
Chapter 1 x
The Government and Not-For-Profit Environment
x x x x
QuestionsxforxReviewxandxDiscussion
x
1. Thexcriticalxdistinctionxbetweenxfor-profitxbusinessesxandxnot-for-
profitsxincludingxgovernmentsxisxthatxbusinessesxhavexprofitxasxtheirxmainxmotivexwhereasxthexother
sxhavexservice.xAxprimaryxpurposexofxfinancialxreportingxisxtoxreportxonxanxentity‘sxaccomplishment
sx—
x howxwellxitxachievedxitsxobjectives.xAccordingly,xthexfinancialxstatementsxofxbusinessesxmeasurexp
rofitability,xtheirxkeyxobjective.xFinancialxreportsxofxgovernmentsxandxotherxnot-for-
profitsxshouldxnotxfocusxonxprofitability,xsincexitxisxnotxaxrelevantxobjective.xIdeally,xtherefore,xtheyx
shouldxfocusxonxotherxperformancexobjectives,xsuchxasxhowxwellxthexorganizationsxmetxtheirxservic
exgoals.xInxreality,xhowever,xthexgoalxofxreportingxonxhowxwellxtheyxhavexachievedxsuchxgoalsxhasxp
rovenxdifficultxtoxattainxandxthexfinancialxreportsxhavexfocusedxmainlyxonxfinancially-xrelatedxdata.
2. Governmentsxandxnot-for-
profitsxarex―governed‖xbyxthexbudget,xwhereasxbusinessesxarexgovernedxbyxthexmarketplace.xThexb
udgetxisxthexkeyxpoliticalxandxfiscalxdocumentxofxgovernmentsxandxnot-for-
profits.xItxdeterminesxhowxanxentityxobtainsxitsxresourcesxandxhowxitxallocatesxthem.xItxencapsulatesx
mostxkeyxdecisionsxofxconsequencexmadexbyxthexorganization.xInxaxgovernmentxthexbudgetxisxnotxm
erelyxaxmanagerialxdocument;xitxisxthexlaw.
3.
Owingxtoxthexsignificancexofxthexbudget,xconstituentsxwantxassurancexthatxthexentityxachieve
sxitsxrevenuexestimatesxandxcompliesxwithxitsxspendingxmandates.xTheyxexpectxthexfinancialxstateme
ntsxtoxreportxonxhowxthexbudgetxwasxadministered.
4.
Interperiodxequityxisxthexconceptxthatxtaxpayersxofxtodayxpayxforxthexservicesxthatxtheyxrecei
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vexandxnotxshiftxthexpaymentxburdenxtoxtaxpayersxofxthexfuture.xFinancialxreportingxmustxindicatexth
exextentxtoxwhichxinterperiodxequityxhasxbeenxachieved.xTherefore,xitxmustxdeterminexandxreportxup
onxthexeconomicxcostsxofxthexservicesxperformedx(notxmerelyxthexcashxcosts)xandxofxthextaxpayers‘xc
ontributionxtowardxcoveringxthosexcosts.
5. Thexmatchingxconceptxmayxbexlessxrelevantxforxgovernmentsxandxnot-for-
profitsxthanxforxbusinessesxbecausextherexmayxbexnoxconnectionxbetweenxrevenuesxgeneratedxandxth
exquantity,xqualityxorxcostxofxservicesxperformed.xAnxincreasexinxthexdemandxfor,xorxcostxof,xservice
sxprovidedxbyxaxhomelessxshelterxwouldxnotxnecessarilyxresultxinxanxincreasexinxthexamountxofxdonat
ionsxthatxitxreceives.xOfxcourse,xgovernmentsxandxnot-xfor-
profitsxarexconcernedxwithxmeasuringxinterperiodxequityxandxforxthatxpurposexthexmatchingxconcept
x mayxbexveryxrelevant.
6.
Governmentsxmustxmaintainxanxaccountingxsystemxthatxassuresxthatxrestrictedxresourcesxare
x notxinadvertentlyxexpendedxforxinappropriatexpurposes.xMoreover,xstatementxusersxmayxneedxsepar
atexinformationxonxthexrestrictedxresourcesxbyxcategoryxofxrestrictionxandxthexunrestrictedxresources
.xInxpractice,xthesexrequirementsxhavexledxgovernmentsxtoxadoptxaxsystemxofx―fund‖xaccountingxan
dxreporting.
7.
Evenxgovernmentsxwithinxthexsamexcategoryxmayxengagexinxdifferentxtypesxofxactivities.xFo
rxexample,xsomexcitiesxoperatexaxschoolxsystemxwhereasxothersxdoxnot.xThosexthatxarexnotxwithinxthe
x samexcategoryxmayxhavexrelativelyxlittlexinxcommon.xForxexample,xaxstatexgovernmentxsharesxfewx
characteristicsxwithxaxcity.
8.
Ifxaxgovernmentxhasxthexpowerxtoxtax,xthenxitxhasxcommandxover,xandxaccessxto,xresources.xT
herefore,xitsxfiscalxwell-
beingxcannotxbexassessedxmerelyxbyxmeasuringxthexxxassetsxxxthatxxxitxxx―owns.‖xxForxxxexample,xxxthexx
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fiscalxxconditionxxofxxaxxcityxxshouldxincorporatexthexwealthxofxthexresidentsxandxbusinessesxwithinxth
excity,xtheirxearningxcapacity,xandxthexcity‘sxwillingnessxtoxexploitxitsxtaxxbase.
9. Manyxgovernmentsxbudgetxonxaxcashxorxnear-
cashxbasis.xHowever,xthexcashxbasisxofxaccountingxdoesxnotxprovidexadequatexinformationxwithxwhi
chxtoxassessxinterperiodxequity.xFinancialxstatementsxthatxsatisfyxthexobjectivexofxreportingxonxinterp
eriodxequityxmayxnotxsatisfyxthatxofxreportingxonxbudgetaryxcompliance.xMoreover,xstatementsxthatx
reportxonxeitherxinterperiodxequityxorxbudgetaryxcompliancexarexunlikelyxtoxprovidexsufficientxinfor
mationxwithxwhichxtoxassessxservicexeffortsxandxaccomplishments.
10.
Measuresxofxservicexeffortsxandxaccomplishmentsxarexmorexsignificantxinxgovernmentsxandx
not-for-
profitsxbecausextheirxobjectivesxarextoxprovidexservice.xByxcontrast,xthexobjectivexofxbusinessesxisxto
x earnxaxprofit.xTherefore,xbusinessesxcanxreportxonxtheirxaccomplishmentsxbyxreportingxonxtheirxprof
itability.xGovernmentsxandxnot-for-profitsxmustxreportxonxotherxmeasuresxofxaccomplishment.
11.
ThexFASBxinfluencesxgenerallyxacceptedxaccountingxprinciplesxofxgovernmentsxinxtwoxkeyx
ways.xFirst,xFASBxpronouncementsxarexincludedxinxthexGASBx―hierarchy‖xofxGAAP.xFASBxpron
ouncementsxthatxthexGASBxhasxspecificallyxmadexapplicablextoxgovernmentsxarexincludedxinxthexhi
ghestxcategory;xthosexthatxthexGASBxhasxnotxspecificallyxadoptedxarexincludedxinxthexlowestxcatego
ry.xSecond,xthexbusiness-
typexactivitiesxofxgovernmentsxarexrequiredx(withxaxfewxexceptions)xtoxfollowxthexbusinessxaccounti
ngxprinciplesxasxsetxforthxbyxthexFASB.
2-2
x 12.
Itxisxmorexdifficultxtoxdistinguishxbetweenxinternalxandxexternalxusersxinxgovernmentsxthanxi
nxbusinessesxbecausexconstituents,xsuchxasxtaxpayers,xmayxplayxsignificantxrolesxinxestablishingxpol
iciesxthatxarexoftenxconsideredxwithinxthexrealmxofxmanagers.xAlso,xlegislatorsxarexinternalxtoxthexext
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