SOLUTION MANUALFOR GOVERNMENT AND NOT FOR
PROFITACCOUNTING CONCEPTS AND PRACTICES 9TH
EDITION MICHAEL H.GRANOF|LATEST UPDATED
VERSION2024.A+
https://www.stuvia.com/user/asolution
, Chapter841
The84Government84and84Not-For-Profit84Environment
Questions84 for84 Review84 and84 Discussion
1. The84 critical84 distinction84 between84 for-profit84 businesses84 and84 not-for-
profits84including84governments84is84that84businesses84have84profit84as84their84main84motive84w
hereas84the84ot84hers84have84service.84A84primary84purpose84of84financial84reporting84is84to84rep
ort84on84an84entity‘s84accompli84shments84—
how84well84it84achieved84its84objectives.84Accordingly,84the84financial84statements84of84busines
ses84measur8 4 e84profitability,84their84key84objective.84Financial84reports84of84governments84and
84other84not-for-
profits84should84not84focus84on84profitability,84since84it84is84not84a84relevant84objective.84Ideally
,84therefore,84t84hey84should84focus84on84other84performance84objectives,84such84as84how84well8
4the84organizations84met84their84service84goals.84In84reality,84however,84the84goal84of84reporting
84on84how84well84they84have84achieved84such84goals84has84proven84difficult84to84attain84and84th
e84financial84reports84have84focused84mainly84on84financially-84related84data.
2. Governments84 and84 not-for-
profits84are84―governed‖84by84the84budget,84whereas84businesses84are84governed84by84the84mark
etplace.84Th8 4 e84budget84is84the84key84political84and84fiscal84document84of84governments84and84
not-for-
profits.84It84determines84how84an84entity84obtains84its84resources84and84how84it84allocates84them.8
4It84encapsula84tes84most84key84decisions84of84consequence84made84by84the84organization.84In84a8
4government84the84budget84is84not84merely84a84managerial84document;84it84is84the84law.
3.
Owing84 to84 the84 significance84 of84 the84 budget,84 constituents84 want84 assurance84 that84 the84 e
ntity84 achi
eves84its84revenue84estimates84and84complies84with84its84spending84mandates.84They84expect84the84fi
nancial84statements84to84report84on84how84the84budget84was84administered.
https://www.stuvia.com/user/asolution
,4.
Interperiod84 equity84 is84 the84 concept84 that84 taxpayers84 of84 today84 pay84 for84 the84 services84
that84 they84 re
ceive84and84not84shift84the84payment84burden84to84taxpayers84of84the84future.84Financial84reporti
ng84must84indi84cate84the84extent84to84which84interperiod84equity84has84been84achieved.84Therefo
re,84it84must84determine84and84report84 upon84 the84 economic84 costs84 of84 the84 services84 perform
ed8 4 (not84 merely84 the84 cash84 costs)84 and84 of84 th84e84taxpayers‘84contribution84toward84coverin
g84those84costs.
5. The84 matching84 concept84 may84 be84 less84 relevant84 for84 governments84 and84 not-for-
profits84than84for84businesses84because84there84may84be84no84connection84between84revenues84ge
nerated84an8 4 d84the84quantity,84quality84or84cost84of84services84performed.84An84increase84in84t
he84demand84for,84or84cost84of,84services84provided84by84a84homeless84shelter84would84not84nece
ssarily84result84in84an84increase84in84the84amou84nt84of84donations84that84it84receives.84Of84cours
e,84governments84and84not-84for-
profits84are84concerned84with84measuring84interperiod84equity84and84for84that84purpose84the84mat
ching84conc84ept84may84be84very84relevant.
6.
Governments84 must84 maintain84 an84 accounting84 system84 that84 assures84 that84 restricted84 res
ources
are84not84inadvertently84expended84for84inappropriate84purposes.84Moreover,84statement84users84
may84need84separate84information84on84the84restricted84resources84by84category84of84restriction84
and84the84unrestricted84r84esources.84In84practice,84these84requirements84have84led84governments8
4to84adopt84a84system84of84―fund‖84ac84counting84and84reporting.
7.
Even84 governments84 within84 the84 same84 category84 may84 engage84 in84 different84 types84 of84
activities.
For84example,84some84cities84operate84a84school84system84whereas84others84do84not.84Those84tha
t84are84not84wit84hin84the84same84category84may84have84relatively84little84in84common.84For84exa
mple,84a84state84government84s84hares84few84characteristics84with84a84city.
https://www.stuvia.com/user/asolution
, 8.
If84 a84 government84 has84 the84 power84 to84 tax,84 then84 it84 has84 command84 over,84 and84 access
84 to,84 resource
s.84 Therefore,84 its84 fiscal84 well-
https://www.stuvia.com/user/asolution
PROFITACCOUNTING CONCEPTS AND PRACTICES 9TH
EDITION MICHAEL H.GRANOF|LATEST UPDATED
VERSION2024.A+
https://www.stuvia.com/user/asolution
, Chapter841
The84Government84and84Not-For-Profit84Environment
Questions84 for84 Review84 and84 Discussion
1. The84 critical84 distinction84 between84 for-profit84 businesses84 and84 not-for-
profits84including84governments84is84that84businesses84have84profit84as84their84main84motive84w
hereas84the84ot84hers84have84service.84A84primary84purpose84of84financial84reporting84is84to84rep
ort84on84an84entity‘s84accompli84shments84—
how84well84it84achieved84its84objectives.84Accordingly,84the84financial84statements84of84busines
ses84measur8 4 e84profitability,84their84key84objective.84Financial84reports84of84governments84and
84other84not-for-
profits84should84not84focus84on84profitability,84since84it84is84not84a84relevant84objective.84Ideally
,84therefore,84t84hey84should84focus84on84other84performance84objectives,84such84as84how84well8
4the84organizations84met84their84service84goals.84In84reality,84however,84the84goal84of84reporting
84on84how84well84they84have84achieved84such84goals84has84proven84difficult84to84attain84and84th
e84financial84reports84have84focused84mainly84on84financially-84related84data.
2. Governments84 and84 not-for-
profits84are84―governed‖84by84the84budget,84whereas84businesses84are84governed84by84the84mark
etplace.84Th8 4 e84budget84is84the84key84political84and84fiscal84document84of84governments84and84
not-for-
profits.84It84determines84how84an84entity84obtains84its84resources84and84how84it84allocates84them.8
4It84encapsula84tes84most84key84decisions84of84consequence84made84by84the84organization.84In84a8
4government84the84budget84is84not84merely84a84managerial84document;84it84is84the84law.
3.
Owing84 to84 the84 significance84 of84 the84 budget,84 constituents84 want84 assurance84 that84 the84 e
ntity84 achi
eves84its84revenue84estimates84and84complies84with84its84spending84mandates.84They84expect84the84fi
nancial84statements84to84report84on84how84the84budget84was84administered.
https://www.stuvia.com/user/asolution
,4.
Interperiod84 equity84 is84 the84 concept84 that84 taxpayers84 of84 today84 pay84 for84 the84 services84
that84 they84 re
ceive84and84not84shift84the84payment84burden84to84taxpayers84of84the84future.84Financial84reporti
ng84must84indi84cate84the84extent84to84which84interperiod84equity84has84been84achieved.84Therefo
re,84it84must84determine84and84report84 upon84 the84 economic84 costs84 of84 the84 services84 perform
ed8 4 (not84 merely84 the84 cash84 costs)84 and84 of84 th84e84taxpayers‘84contribution84toward84coverin
g84those84costs.
5. The84 matching84 concept84 may84 be84 less84 relevant84 for84 governments84 and84 not-for-
profits84than84for84businesses84because84there84may84be84no84connection84between84revenues84ge
nerated84an8 4 d84the84quantity,84quality84or84cost84of84services84performed.84An84increase84in84t
he84demand84for,84or84cost84of,84services84provided84by84a84homeless84shelter84would84not84nece
ssarily84result84in84an84increase84in84the84amou84nt84of84donations84that84it84receives.84Of84cours
e,84governments84and84not-84for-
profits84are84concerned84with84measuring84interperiod84equity84and84for84that84purpose84the84mat
ching84conc84ept84may84be84very84relevant.
6.
Governments84 must84 maintain84 an84 accounting84 system84 that84 assures84 that84 restricted84 res
ources
are84not84inadvertently84expended84for84inappropriate84purposes.84Moreover,84statement84users84
may84need84separate84information84on84the84restricted84resources84by84category84of84restriction84
and84the84unrestricted84r84esources.84In84practice,84these84requirements84have84led84governments8
4to84adopt84a84system84of84―fund‖84ac84counting84and84reporting.
7.
Even84 governments84 within84 the84 same84 category84 may84 engage84 in84 different84 types84 of84
activities.
For84example,84some84cities84operate84a84school84system84whereas84others84do84not.84Those84tha
t84are84not84wit84hin84the84same84category84may84have84relatively84little84in84common.84For84exa
mple,84a84state84government84s84hares84few84characteristics84with84a84city.
https://www.stuvia.com/user/asolution
, 8.
If84 a84 government84 has84 the84 power84 to84 tax,84 then84 it84 has84 command84 over,84 and84 access
84 to,84 resource
s.84 Therefore,84 its84 fiscal84 well-
https://www.stuvia.com/user/asolution
