Chapter 1: Governmental and Not-for-Profit
Accounting Environment and Characteristics
Multiple Choice
1. Which of the following is a distinguishing characteristic of a nonbusiness
organization?
a. its revenues do not exceed its expenses
b. there is an absence of ownership interests that can be sold, transferred, or
redeemed
c. it does not depreciate its capital assets
d. it does not charge fees for any of its services
Answer: b
2. Which of the following activities is performed by governments but not by not-for-
profit organizations?
a. issuing federal tax-free debt
b. receiving grants
c. preparing budgets
d. providing services to constituents
Answer: a
3. Government and nonprofit accounting focuses on which of the following?
a. calculating profit or loss
b. protecting investors from fraud
c. demonstrating accountability
d. reporting to management
Answer: c
,4. For which types of organizations is the Financial Accounting Standards Board
(FASB) responsible for establishing accounting and financial reporting standards?
a. business-type organizations and not-for-profit organizations, including not-
for-profit colleges, universities and health care providers
b. business-type organizations; not-for-profit organizations; and all colleges,
universities and health care providers, whether organized as not-for-profit
or governmental entities
c. business-type organizations only
d. all entities, except for those under the jurisdiction of the American Institute
of CPAs
Answer: a
5. A not-for-profit organization performs all of the following activities except
a. charging a fee for services provided
b. paying dividends to shareholders
c. purchasing long-lived (capital) assets
d. paying overtime to employees
Answer: b
6. For which types of organizations is the Governmental Accounting Standards Board
(GASB) responsible for establishing accounting and financial reporting standards?
a. all state, local, and Federal organizations
, b. all state and local governmental organizations, except for state and local
governmental colleges, universities, health care providers, and utilities
c. all state and local governmental organizations, including government-
sponsored colleges, universities, health care providers, and utilities
d. all governmental and not-for-profit organizations
Answer: c
7. To what extent do accounting standards promulgated by the Financial Accounting
Standards Board (FASB) apply to state and local governmental entities?
a. FASB standards apply if so designated by the GASB
b. FASB standards apply if so designated by the AICPA
c. FASB standards never apply to governmental entities
d. All governmental entities have a choice between GASB and FASB standards
Answer: a
8. Which of the following is the most authoritative source of accounting standards for
not-for-profit colleges, universities, and health care providers?
a. current practices widely used by not-for-profit entities
b. FASB Statements and Interpretations
c. AICPA Industry Audit Guides
d. consensus positions of the FASB Emerging Issues Task Force
Answer: b
9. Concepts statements issued by the GASB and the FASAB emphasize which of the
following objectives of governmental financial reporting?
a. it should help the chief executive assess the entity's financial condition.
b. it should help department heads assess their department's results of
operations.
c. it should help the judiciary determine whether the government has
complied with the law.
, d. it should help report users assess accountability.
Answer: d
10. An activity that is unique to governments is
a. budgeting
b. cash management
c. levying taxes
d. advertising
Answer: c
11. To what extent do organizations that use fund accounting also report on the entity
as a whole?
a. organizations that use fund accounting are not required to report on the
entity as a whole
b. organizations that choose to report on the entity as a whole are not
permitted to use fund accounting for internal purposes
c. organizations that use fund accounting are required to report on the entity
as a whole
d. organizations that use fund accounting have the option of reporting either
on funds or on the organization as a whole
Answer: c
12. Not-for-profit organizations obtain their revenues primarily from
a. sales to customers
b. contributions from donors
c. taxes on personal property
Accounting Environment and Characteristics
Multiple Choice
1. Which of the following is a distinguishing characteristic of a nonbusiness
organization?
a. its revenues do not exceed its expenses
b. there is an absence of ownership interests that can be sold, transferred, or
redeemed
c. it does not depreciate its capital assets
d. it does not charge fees for any of its services
Answer: b
2. Which of the following activities is performed by governments but not by not-for-
profit organizations?
a. issuing federal tax-free debt
b. receiving grants
c. preparing budgets
d. providing services to constituents
Answer: a
3. Government and nonprofit accounting focuses on which of the following?
a. calculating profit or loss
b. protecting investors from fraud
c. demonstrating accountability
d. reporting to management
Answer: c
,4. For which types of organizations is the Financial Accounting Standards Board
(FASB) responsible for establishing accounting and financial reporting standards?
a. business-type organizations and not-for-profit organizations, including not-
for-profit colleges, universities and health care providers
b. business-type organizations; not-for-profit organizations; and all colleges,
universities and health care providers, whether organized as not-for-profit
or governmental entities
c. business-type organizations only
d. all entities, except for those under the jurisdiction of the American Institute
of CPAs
Answer: a
5. A not-for-profit organization performs all of the following activities except
a. charging a fee for services provided
b. paying dividends to shareholders
c. purchasing long-lived (capital) assets
d. paying overtime to employees
Answer: b
6. For which types of organizations is the Governmental Accounting Standards Board
(GASB) responsible for establishing accounting and financial reporting standards?
a. all state, local, and Federal organizations
, b. all state and local governmental organizations, except for state and local
governmental colleges, universities, health care providers, and utilities
c. all state and local governmental organizations, including government-
sponsored colleges, universities, health care providers, and utilities
d. all governmental and not-for-profit organizations
Answer: c
7. To what extent do accounting standards promulgated by the Financial Accounting
Standards Board (FASB) apply to state and local governmental entities?
a. FASB standards apply if so designated by the GASB
b. FASB standards apply if so designated by the AICPA
c. FASB standards never apply to governmental entities
d. All governmental entities have a choice between GASB and FASB standards
Answer: a
8. Which of the following is the most authoritative source of accounting standards for
not-for-profit colleges, universities, and health care providers?
a. current practices widely used by not-for-profit entities
b. FASB Statements and Interpretations
c. AICPA Industry Audit Guides
d. consensus positions of the FASB Emerging Issues Task Force
Answer: b
9. Concepts statements issued by the GASB and the FASAB emphasize which of the
following objectives of governmental financial reporting?
a. it should help the chief executive assess the entity's financial condition.
b. it should help department heads assess their department's results of
operations.
c. it should help the judiciary determine whether the government has
complied with the law.
, d. it should help report users assess accountability.
Answer: d
10. An activity that is unique to governments is
a. budgeting
b. cash management
c. levying taxes
d. advertising
Answer: c
11. To what extent do organizations that use fund accounting also report on the entity
as a whole?
a. organizations that use fund accounting are not required to report on the
entity as a whole
b. organizations that choose to report on the entity as a whole are not
permitted to use fund accounting for internal purposes
c. organizations that use fund accounting are required to report on the entity
as a whole
d. organizations that use fund accounting have the option of reporting either
on funds or on the organization as a whole
Answer: c
12. Not-for-profit organizations obtain their revenues primarily from
a. sales to customers
b. contributions from donors
c. taxes on personal property
