Solution Manual for Government And Not For
9 9 9 9 9 9 9
Profit Accounting Concepts And Practices 9th
9 9 9 9 9
Edition Michael H. Granof
9 9 9 9
Chapter 1 9
The9Government9and9Not-For-Profit9Environment
Questions9for9Review9and9Discussion
1. The9critical9distinction9between9for-profit9businesses9and9not-for- Formatted:9Section9start:9Continuo
s,9Suppress9Endnotes,9From9text:9 1
profits9including9governments9is9that9businesses9have9profit9as9their9main9motive9 29cm
whereas9the9others9have9service.9A9primary9purpose9of9financial9reporting9is9to9rep
ort9on9an9entity‘s9accomplishments9—
9how9well9it9achieved9its9objectives.9Accordingly,9the9financial9statements9of9busin
esses9measure9profitability,9their9key9objective.9Financial9reports9of9governments9a
nd9other9not-for-
profits9should9not9focus9on9profitability,9since9it9is9not9a9relevant9objective.9Ideally,
9therefore,9they9should9focus 9on9other9performance 9objectives,9such9as9how9well9th
e9organizations9met9their9service9goals.9In9reality,9however,9the9goal9of9reporting9o
n9how9well9they9have9achieved9such9goals9has9proven9difficult9to9 attain9and9the9fin
ancial9reports9have9focused9mainly9on9financially-9related9data.
2. Governments9 and9 not-for-
profits9 are9 ―governed‖9 by9 the9 budget,9 whereas9 businesses9are9governed9by9the9mar
ketplace.9The9budget9is9the9key9political9and9fiscal9document9of9governments9and9n
ot-for-
profits.9It9determines9how9an9entity9obtains9its9resources9and9how9it9allocates9them.
9It9encapsulates9most9key9decisions9of9consequence 9made9by9the9organization.9In9a
9government 9the9budget9is9not9merely9a9managerial 9document;9it9 is9the9law.
3. Owing9to9the9significance9of9the9budget,9constituents9want9assurance9that9the9entit
y9achieves9its9revenue9estimates9and9complies9with9its9spending9mandates.9They9ex
pect9the9financial9statements9to9report9on9how9the9budget9was9administered.
4. Interperiod9equity9is9the9concept9that9taxpayers9of9today9pay9for9the9services9that9t
hey9receive9and9not9shift9the9payment9burden9to9taxpayers9of9the9future.9Financial9
reporting9must9indicate9the9extent9to9which9interperiod9equity9has9been9achieved.9
Therefore,9it9must9determine 9and9report9upon9the9economic9costs9of9the9services9p
erformed9(not9merely9the9cash9costs)9and9of9the9taxpayers‘9contribution9toward9co
vering9those9costs.
5. The9matching9concept9may9be9less9relevant9for9governments9and9not-for-
profits9than9for9businesses9because9there9may9be9no9connection9between9revenues9g
1-1
,enerated9and
2-1
, the9quantity,9quality9or9cost9of9services9performed.9An9increase9in9the9demand9for,9
or9cost9of,9services9provided9by9a9homeless9shelter9would9not9necessarily9result9in9
an9increase9in9the9amount9of9donations9that9it9receives.9Of9course,9governments9and
9not-9for-
profits9are9concerned9with9measuring9interperiod9equity9and9for9that9purpose9the9m
atching9concept9 may9be9very9relevant.
6. Governments9must9maintain9an9accounting9system9that9assures9that9restricted9reso
urces9are9not9inadvertently9expended9for9inappropriate9purposes.9Moreover,9statem
ent9users9may9need9separate9information9on9the9restricted9resources9by9category9of
9restriction9and9the9unrestricted9resources.9In9practice,9these9requirements 9have9 led9 g
overnments9to9 adopt9 a9system9of9―fund‖9accounting9 and9 reporting.
7. Even9governments9within9the9same9category9may9engage9in9different9types9of9acti
vities.9For9example,9some9cities9operate9a9school9system9whereas9others9do9not.9T
hose9that9are9not9within9the9same9category9may9have9relatively9little9in9common.9F
or9example,9a9state9government9shares9few9characteristics9with9a9city.
8. If9a9government9has9the9power9to9tax,9then9it9has9command9over,9and9access9to,9re
sources.9Therefore,9its9fiscal9well-
being9cannot9be9assessed9merely9by9measuring9the999assets999that999it999―owns.‖99 For99
9example,999the99 fiscal99 condition99 of99 a99 city99 should 9incorporate9the9wealth9of9the9re
sidents9and9businesses9within9the9city,9their9earning9capacity,9and9the9city‘s9willin
gness9to9exploit9its9tax9base.
9. Many9governments9budget9on9a9cash9or9near-
cash9basis.9However,9the9cash9basis9of9accounting9does9not9provide9adequate9infor
mation9with9which9to9assess9interperiod9equity.9Financial9statements9that9satisfy9th
e9objective9of9reporting9on9interperiod9equity9may9not9satisfy9that9of9reporting9on9
budgetary9compliance.9Moreover,9statements9that9report9on9either9interperiod9equit
y9or9budgetary9compliance9are9unlikely9to9provide9sufficient9information9with9whi
ch9to9assess9service9efforts9and9accomplishments.
10. Measures9of9service9efforts9and9accomplishments9are9more9significant9in9government
s9and9not-for-
profits9because9their9objectives9are9to9provide9service.9By9contrast,9the9objective9o
f9businesses9is9to9earn9a9profit.9Therefore,9businesses9can9report9on9their9accomplis
hments9by9reporting9on9their9profitability.9Governments9and9not-for-
profits9must9report9 on9other9measures9of9accomplishment.
11. The9FASB9influences9generally9accepted9accounting9principles9of9governments9in9
two9 key9ways.9 First,9 FASB9pronouncements9are9included9 in9the9GASB9―hierarchy‖9o
f9GAAP.9FASB9pronouncements9that9the9GASB9has9specifically9made9applicable9t
o9governments9are9included9in9the9highest9category;9those9that9the9GASB9has9not9
specifically9adopted9are9included9in9the9lowest9category.9Second,9the9business-
type9activities9of9governments9are9required9(with9a9few9exceptions)9to9follow9the9b
usiness9accounting9principles9as9set9forth9by9the9FASB.
3-1
, 12. It9is9more9difficult9to9distinguish9between9internal9and9external9users9in9governmen
ts9than9in9businesses9because9constituents,9such9as9taxpayers,9may9play9significant9r
oles9in9establishing9policies9that9are9often9considered9within9the9realm9of9managers.
9Also,9legislators9are9internal 9to9the9extent 9they9set9policy,9but9external9insofar9as9t
he9executive9branch9must9account9to9the9legislative9branch.
Exercises
EX91-1
1. a
2. c
3. c
4. c
5. b
6. c
7. d
8. c
9. b
10. c
EX91-2
1. b
2. b
3. d
4. b
5. a
6. c
7. a
8. b
9. a
10. b
EX91-3
a. 1.9The9Governmental9Accounting9Standards9Board9(GASB)9is9the9independent9org
anization9that9establishes9and9improves9standards9of9accounting9and9financial9reporting9f
or9U.S.9state9and9local9governments.9Established9in919849by9agreement9of9the9Financial
9Accounting9Foundation9(FAF)9and9109national9associations 9of9state9and9local9governme
nt9officials,9the9GASB9is9recognized9by9governments,9the9accounting9industry,9and9the9ca
pital9markets9as9the9official9source9of9generally9accepted9accounting9principles9(GAAP)9
for9state9and9local9governments.
4-1
