Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical government or not-for-profit entity is to earn a profit.
2. A government’s budget may be backed by the force of law.
3. Governments 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-profit entities may never engage in business-type activities.
6. Lenders use the financial statements of governments and not-for-profit entities 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 Federal Accounting Standards Advisory Board’s standards do not apply to the
federal Department of the 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 governments and all not-for-profit entities.
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governments from businesses 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 businesses 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.
3. Which of the following characteristics distinguishes a government or not-for-profit
entity from a business?
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 government is the
a) Balance sheet.
b) Operating statement.
c) Operating budget.
d) Cash flow statement.
, 5. Which of the following statements is true?
a) Governments may engage in activities similar to activities engaged in by for-profit
entities.
b) There are a limited number of different types of governments.
c) All governments 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 government 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.
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical government or not-for-profit entity is to earn a profit.
2. A government’s budget may be backed by the force of law.
3. Governments 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-profit entities may never engage in business-type activities.
6. Lenders use the financial statements of governments and not-for-profit entities 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 Federal Accounting Standards Advisory Board’s standards do not apply to the
federal Department of the 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 governments and all not-for-profit entities.
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governments from businesses 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 businesses 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.
3. Which of the following characteristics distinguishes a government or not-for-profit
entity from a business?
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 government is the
a) Balance sheet.
b) Operating statement.
c) Operating budget.
d) Cash flow statement.
, 5. Which of the following statements is true?
a) Governments may engage in activities similar to activities engaged in by for-profit
entities.
b) There are a limited number of different types of governments.
c) All governments 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 government 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.
