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. 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
3. 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
4. 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
5. 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
,6. Concepts statements issued by the GASB and the FASAB emphasize which of the
following statements regarding 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
7. Which of the following statements is true regarding funds used by governmental and
not-for- profit entities?
a. All funds can be used for any purpose deemed necessary by the entity's governing
body.
b. Debits do not always equal credits in every fund, but total debits must equal total
credits when funds are combined into an entity-wide report.
c. Governmental and not-for-profit entities are likely to have a General Fund (or its
equivalent) plus funds whose use is restricted in some manner.
d. Governmental and not-for-profit entities may have no more than six funds.
Answer: c
8. To what extent do organizations that use fund accounting 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
Problems
9. (True or false)
State whether these statements are true or false. Discuss why the false statements are
false.
a. An entity is likely to be a governmental entity if a controlling majority of its governing
body is appointed by governmental officials.
b. AICPA pronouncements have approximately the same level of authority as articles
appearing in the Journal of Accountancy.
c. The efficiency and effectiveness of most nonbusiness organizations can be measured
by looking to their net income.
d. By definition, all funds have cash, financial resources, and capital resources.
Answer:
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. 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
3. 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
4. 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
5. 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
,6. Concepts statements issued by the GASB and the FASAB emphasize which of the
following statements regarding 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
7. Which of the following statements is true regarding funds used by governmental and
not-for- profit entities?
a. All funds can be used for any purpose deemed necessary by the entity's governing
body.
b. Debits do not always equal credits in every fund, but total debits must equal total
credits when funds are combined into an entity-wide report.
c. Governmental and not-for-profit entities are likely to have a General Fund (or its
equivalent) plus funds whose use is restricted in some manner.
d. Governmental and not-for-profit entities may have no more than six funds.
Answer: c
8. To what extent do organizations that use fund accounting 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
Problems
9. (True or false)
State whether these statements are true or false. Discuss why the false statements are
false.
a. An entity is likely to be a governmental entity if a controlling majority of its governing
body is appointed by governmental officials.
b. AICPA pronouncements have approximately the same level of authority as articles
appearing in the Journal of Accountancy.
c. The efficiency and effectiveness of most nonbusiness organizations can be measured
by looking to their net income.
d. By definition, all funds have cash, financial resources, and capital resources.
Answer:
