Chapter 1 Flashcards
Environment & Characteristics
3 Differences between Nonprofit and Business entities (Think: purpose, money, and equity).
Money: not for profit mostly get their money from contributions of wealthy people (sometimes with certain stipulations).
Purpose: making a profit vs. providing goods/services with no expectation of an equivalent return.
Equity: there is no ownership interests in not for profit like there is in business (at least not in the same sense).
Types of governmental institutions and 4 characteristics of other organizations, that when created by government, are also considered to be governmental entities
Federal and State, Local, County governments.
- Popularly elected leaders, or appointed by govt. officials.
- Tax levy (enact and enforce)
- Tax exempt debt (interest is exempt from federal tax).
- Dissolution by bigger govt. is a potential situation.
3 Major environmental characteristics of governmental and not for profit.
- Organizational purposes
- Sources of revenue and relationship with stakeholders.
- Potential for longevity.
Restrictions on resources by governments and by donors in the case of not for profit.
Govt: budget cannot be exceeded w/o legislative approval. Borrowings and grants are limited to purposes for which they may be used.
Not for profit: time and purpose may be specified by donor.
Users of Govt. and not for profit acct. info.
resource providers, oversight bodies, and service recipients
Users might use the info to:
Determine if sufficient financial resources exist for cases of: economic contraction, payment of ST and LT debt, provision of services, following stipulated restrictions, inefficiency, meeting program goals.
3 Differences b/w state and local govt. acct. and business acct.
- Modified accrual acct. for govt. type funds
- Fund accounting and entity wide acct.
- Budgetary accounting.
Jurisdictions of GASB, FASAB and FASB
GASB - State and local govt.
FASB - business and not-for profit entities
FASAB - Federal govt.
Governments and nonprofit entities are similar in many ways. Which of the following statements is not true?
a. Neither governments nor nonprofit entities have a profit motive. b. Both governments and nonprofit entities provide services. c. Both governments and nonprofit entities assess taxes. d. Both governments and nonprofit entities often report restricted resources.
c.
Why do governments and nonprofit entities use fund accounting? a. To help ensure restricted resources are spent for their intended purpose. b. To help limit errors when posting general journal entries to the general ledger. c. To allow managers more flexibility when budgeting. d. To better match revenues and expenses
a.
Which of the following is generally the major source of revenues for governments? a. Voluntary donations. b. Revenue from exchange transactions. c. Taxes. d. Revenue from investments.
c.
Successful entities prepare budgets. Which of the following entities is generally required by law to prepare a budget? a. Commercial business enterprises. b. Governments. c. Nonprofit entities. d. All of the above are required by law to prepare a budget.
b.
Users of governmental and nonprofit financial reports use financial statements to answer a number of questions. Which of the following can at least partially be answered by reading a government or nonprofit’s financial statements? a. Does the entity have sufficient financial resources to provide a reasonable cushion against near‑term revenue shortfalls caused by economic contraction? b. What is the likelihood of the entity’s ability to pay its short‑term and long‑term financial obligations? c. What is the entity’s ability to continue to provide a particular level of services? d. Financial statements can be used to answer all of the aforementioned questions. e. None of the above.
d.
Which of the following type of entities commonly uses fund accounting for internal reporting purposes? a. State and local governments. b. Business enterprises. c. Nonprofit entities. d. Both a and b. e. Both a and c.
e.
Which of the following type of entities prepares financial statements using both the modified accrual basis of accounting and the accrual basis of accounting? a. State and local governments. b. Business enterprises. c. Nonprofit entities. d. Federal government
a.
accrual basis for business type activities (Enterprise fund)
modified accrual basis for the rest
Which of the following type of entities prepares both entity‑wide and fund financial statements? a. State and local governments. b. Business enterprises. c. Nonprofit entities. d. Federal government.
a.
