Accounting for Governmental &
Nonprofit Organizations questions with
actual answers.
Q1-1: Describe the characteristics that distinguish nonprofit organizations from business enterprises.
ANS -Three things distinguish the two:
1. How they raise capital
2. Purpose of operating
3. Ownership interest
Not-for-profit organizations:
(1) receive contributions of significant amounts of resources from resource providers who do not expect
an equivalent pecuniary return.
(2) operate for purposes other than to provide goods and services at a profit
(3) lack ownership interests like those of a business enterprise.
Q1-2: Identify the various types of entities that constitute governmental organizations, and
characteristics of other organizations that, when created by governments, are also considered to
governmental entities. ANS -Governmental entities include: the federal government; general-purpose
political subdivisions (such as states, counties, cities, and towns); special-purpose political subdivisions
(such as school districts); and public corporations and bodies corporate and politic (such as state-
operated toll roads and toll bridges).
Other organizations created by governments by statute or under not-for-profit corporation laws are
governmental if they possess one or more of the following characteristics:
(A) Their officers are popularly elected or a controlling majority of their governing body is appointed or
approved by governmental officials.
(B) They have the power to enact and enforce a tax levy.
(C) They have the power to directly issue debt whose interest is exempt from federal tax.
(D) There is a potential for a government to dissolve them unilaterally and assume their assets and
liabilities.
,Q1-3: Identify and briefly explain three (there are four) major environmental characteristics of
governmental and nonprofit organizations. ANS -Major environmental characteristics of governmental
and not-for-profit organizations are:
(1) Organizational purposes- Governmental and not-for-profit entities exist to provide services to their
constituents, not to generate profits. There is a major focus on accountability to ensure resources are
used properly.
(2) Sources of revenue and relationship with stakeholders- Governments derive revenues primarily from
taxpayers. Individual taxpayers are involuntary resource providers whose tax payments may or may not
bear a direct relationship to the services they want or need. Not-for-profit entities obtain significant
resources from donors who receive no service or product in exchange, but who nonetheless are
concerned with whether their donations are achieving the intended purposes.
(3) Potential for longevity- Governments tend to exist in perpetuity because of the nature of the services
they provide. This has caused governmental accounting standards-setters to take a long-term
perspective regarding certain measurements.
(4) Role of the budget and legal requirements- Governmental entities are required by law to provide
certain services. Their budgets are legal documents and generally cannot be exceeded without specific
legislative approval. Their borrowings are also constrained by law as to purpose. Some not-for-profit
entities obtain significant resources from contributions that are subject to specific restrictions as to how
they may be used. This has led to standards that take account of the need for demonstrating budgetary
and legal compliance.
Q1-4: Illustrate the kinds of restrictions placed by laws on the ability of governments to use resources,
and by donors on the ability of nonprofit entities to use resources. ANS -Government: Budgets generally
cannot be exceeded without specific legislative approval; borrowings are generally specifically limited as
to the purposes for which they may be used; and grants from higher level governments are generally
specifically limited as to purpose.
Not-for-profit entities: Donors often place specific restrictions on contributions as to what they may be
used for and when they may be used.
, Q1-5: Who are the users of governmental and nonprofit entity accounting information, and for what
purposes might they use that information? ANS -Governmental and not-for-profit entity accounting
information include both internal and external users.
Users include:
(A) Resource providers (taxpayers, donors and potential donors, investors and potential investors, bond-
rating agencies, and grant-providing organizations)
(B) Oversight bodies (higher-level governments, regulatory bodies)c. Service recipients (citizen advocate
groups)
(C) Management to plan and budget a key component in making decisions within an organization
Users might use accounting information to:
(A) see if the entity has sufficient financial resources to cushion against economic contraction.
(B) determine the likelihood of repaying short-term and long-term financial obligations
(C) determine the likelihood of continuing to provide a particular level of service
(D) see if the entity uses resources consistent with budget limits; donor restrictions, legal limits
(E) see if financial data shows evidence of inefficiency, such as slow collection of receivables
(F) and to see if restrictions on the use of resources reduces the organizations flexibility in meeting
program goals.
Q1-6: List the three ways identified by GASB in which financial reporting can help users assess
governmental accountability. ANS -(1) by showing if current-year revenues were sufficient to pay for
current-year services
(2) by showing whether resources were obtained and used in accordance with the legally adopted
budget
(3) by providing data to help users assess the entity's service efforts, costs and accomplishments.
Q1-7: List three unique characteristics of state and local governmental accounting as contrasted with
business enterprise accounting. ANS -(1) State and local governments use fund accounting
(2) They incorporate budgetary accounting into their accounting systems
(3) They use a two-level system of financial reporting; and report extensively on restricted resources.
Nonprofit Organizations questions with
actual answers.
Q1-1: Describe the characteristics that distinguish nonprofit organizations from business enterprises.
ANS -Three things distinguish the two:
1. How they raise capital
2. Purpose of operating
3. Ownership interest
Not-for-profit organizations:
(1) receive contributions of significant amounts of resources from resource providers who do not expect
an equivalent pecuniary return.
(2) operate for purposes other than to provide goods and services at a profit
(3) lack ownership interests like those of a business enterprise.
Q1-2: Identify the various types of entities that constitute governmental organizations, and
characteristics of other organizations that, when created by governments, are also considered to
governmental entities. ANS -Governmental entities include: the federal government; general-purpose
political subdivisions (such as states, counties, cities, and towns); special-purpose political subdivisions
(such as school districts); and public corporations and bodies corporate and politic (such as state-
operated toll roads and toll bridges).
Other organizations created by governments by statute or under not-for-profit corporation laws are
governmental if they possess one or more of the following characteristics:
(A) Their officers are popularly elected or a controlling majority of their governing body is appointed or
approved by governmental officials.
(B) They have the power to enact and enforce a tax levy.
(C) They have the power to directly issue debt whose interest is exempt from federal tax.
(D) There is a potential for a government to dissolve them unilaterally and assume their assets and
liabilities.
,Q1-3: Identify and briefly explain three (there are four) major environmental characteristics of
governmental and nonprofit organizations. ANS -Major environmental characteristics of governmental
and not-for-profit organizations are:
(1) Organizational purposes- Governmental and not-for-profit entities exist to provide services to their
constituents, not to generate profits. There is a major focus on accountability to ensure resources are
used properly.
(2) Sources of revenue and relationship with stakeholders- Governments derive revenues primarily from
taxpayers. Individual taxpayers are involuntary resource providers whose tax payments may or may not
bear a direct relationship to the services they want or need. Not-for-profit entities obtain significant
resources from donors who receive no service or product in exchange, but who nonetheless are
concerned with whether their donations are achieving the intended purposes.
(3) Potential for longevity- Governments tend to exist in perpetuity because of the nature of the services
they provide. This has caused governmental accounting standards-setters to take a long-term
perspective regarding certain measurements.
(4) Role of the budget and legal requirements- Governmental entities are required by law to provide
certain services. Their budgets are legal documents and generally cannot be exceeded without specific
legislative approval. Their borrowings are also constrained by law as to purpose. Some not-for-profit
entities obtain significant resources from contributions that are subject to specific restrictions as to how
they may be used. This has led to standards that take account of the need for demonstrating budgetary
and legal compliance.
Q1-4: Illustrate the kinds of restrictions placed by laws on the ability of governments to use resources,
and by donors on the ability of nonprofit entities to use resources. ANS -Government: Budgets generally
cannot be exceeded without specific legislative approval; borrowings are generally specifically limited as
to the purposes for which they may be used; and grants from higher level governments are generally
specifically limited as to purpose.
Not-for-profit entities: Donors often place specific restrictions on contributions as to what they may be
used for and when they may be used.
, Q1-5: Who are the users of governmental and nonprofit entity accounting information, and for what
purposes might they use that information? ANS -Governmental and not-for-profit entity accounting
information include both internal and external users.
Users include:
(A) Resource providers (taxpayers, donors and potential donors, investors and potential investors, bond-
rating agencies, and grant-providing organizations)
(B) Oversight bodies (higher-level governments, regulatory bodies)c. Service recipients (citizen advocate
groups)
(C) Management to plan and budget a key component in making decisions within an organization
Users might use accounting information to:
(A) see if the entity has sufficient financial resources to cushion against economic contraction.
(B) determine the likelihood of repaying short-term and long-term financial obligations
(C) determine the likelihood of continuing to provide a particular level of service
(D) see if the entity uses resources consistent with budget limits; donor restrictions, legal limits
(E) see if financial data shows evidence of inefficiency, such as slow collection of receivables
(F) and to see if restrictions on the use of resources reduces the organizations flexibility in meeting
program goals.
Q1-6: List the three ways identified by GASB in which financial reporting can help users assess
governmental accountability. ANS -(1) by showing if current-year revenues were sufficient to pay for
current-year services
(2) by showing whether resources were obtained and used in accordance with the legally adopted
budget
(3) by providing data to help users assess the entity's service efforts, costs and accomplishments.
Q1-7: List three unique characteristics of state and local governmental accounting as contrasted with
business enterprise accounting. ANS -(1) State and local governments use fund accounting
(2) They incorporate budgetary accounting into their accounting systems
(3) They use a two-level system of financial reporting; and report extensively on restricted resources.
