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Gov and Not-for-Profit Accounting Exam 1 Chapter 1, Study notes of Government & Non-Profit Accounting

Brooklyn Institute of Business Technology Government & Non-Profit Accounting

Notes from the first chapter that is on exam 1

Typology: Study notes

2021/2022

Uploaded on 10/12/2022

savana-minerva 🇺🇸

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Exam 1: Chapters: 1-5, 11

Chapter 1: The Government and NFP Environment

I. Different standards setting boards

A. GASB = for state and local governments

B. FASAB = for the federal government

C. FASB = for private sector and non-gov NFP

II. How governments and NFPs differ from businesses

A. Different missions: government/NFP’s goal is something other than earning

profits while the main goal of a business is to earn a profit

1. This affects what the F/S show based on what the goals are of the entity

2. I.e. the income statement is meant to show how well the business achieved

its goal aka a profit and the whole goal of financial reporting is to

maximize profit

3. Contrasted with gov/NFP where the financial reports show inflows and

outflows of resources as revenues and expenditures. Financial reports here

don’t necessarily want an excess of revenues over expenditures like we

would want to see for a business

B. Budgets: gov/NFPs rely heavily on their budgets

C. Expenditures may drive revenue: businesses may set their prices on at the highest

amount they can charge to match what the market is willing to pay. Gov/NFPs

first calculate all their costs and expected funds to then set prices of things like

tuition, dues, etc. Expenditures drive revenues

1. Examples: universities, fraternities and sororities

2. They can’t just raise prices without a regard to rules/policies/services

D. The budget is the most important financial document: the annual report is usually

the most significant for businesses and this is what most, if not all,

investors/creditors/shareholders etc. rely on and read to understand the business.

1. Most people don’t care about a gov/NFP annual report because if

everything is budgeted correctly nothing should differ

2. This is why the budget is the most important document because it contains

all the decisions to be made by the org.

3. Budgets may be enforced by law and policy - governments often are

prohibited from even spending more than the allotted budget and people

can go to jail for doing so (extreme violations)

E. Budgets drive accounting and financial reporting: people involved with the org

only care what happened in regard to spending in accordance with the budget - so

this is what the reporting is entirely based upon.

Partial preview of the text

Download Gov and Not-for-Profit Accounting Exam 1 Chapter 1 and more Study notes Government & Non-Profit Accounting in PDF only on Docsity!

Exam 1 : Chapters: 1 - 5 , 11

Chapter 1 : The Government and NFP Environment

I. Different standards setting boards A. GASB = for state and local governments B. FASAB = for the federal government C. FASB = for private sector and non-gov NFP II. How governments and NFPs differ from businesses A. Different missions: government/NFP’s goal is something other than earning profits while the main goal of a business is to earn a profit

This affects what the F/S show based on what the goals are of the entity
I.e. the income statement is meant to show how well the business achieved its goal aka a profit and the whole goal of financial reporting is to maximize profit
Contrasted with gov/NFP where the financial reports show inflows and outflows of resources as revenues and expenditures. Financial reports here don’t necessarily want an excess of revenues over expenditures like we would want to see for a business B. Budgets: gov/NFPs rely heavily on their budgets C. Expenditures may drive revenue: businesses may set their prices on at the highest amount they can charge to match what the market is willing to pay. Gov/NFPs first calculate all their costs and expected funds to then set prices of things like tuition, dues, etc. Expenditures drive revenues
Examples: universities, fraternities and sororities
They can’t just raise prices without a regard to rules/policies/services D. The budget is the most important financial document: the annual report is usually the most significant for businesses and this is what most, if not all, investors/creditors/shareholders etc. rely on and read to understand the business.
Most people don’t care about a gov/NFP annual report because if everything is budgeted correctly nothing should differ
This is why the budget is the most important document because it contains all the decisions to be made by the org.
Budgets may be enforced by law and policy - governments often are prohibited from even spending more than the allotted budget and people can go to jail for doing so (extreme violations) E. Budgets drive accounting and financial reporting: people involved with the org only care what happened in regard to spending in accordance with the budget - so this is what the reporting is entirely based upon.

F. Need to ensure interperiod equity: most orgs are required by law to balance their operating budgets to ensure that revenues cover expenditures in any given period.

If they do not do so, the cost of benefits enjoyed today are borne by those of tomorrow
Intergenerational equity = the concept that people pay for the services they receive and do NOT shift the burden to pay to their children a) Now the goal is to not even shift the burden to future years = interperiod equity G. Revenue not indicative of demand for goods and services: for example an increase of tax revenue does not say anything about the amount or quality of service provided so gov/NFP need supplementary info
Whereas businesses see increased revenues during the holiday season for example because demand is higher H. No direct link between revenues and expenses: similar to above, revenue is not linked to expenses for gov/NFP because even if they see an increase in donations one year that does not mean they have to increase their spending/costs of services does not necessarily go up
Matching concept does not apply here/has a different meaning I. Capital assets may neither produce revenues nor save costs: so gov/NFP have to value assets differently than businesses. Most capital assets cannot even be associated with revenues such as a highway or library, they often are more of liabilities as maintenance for them uses resources instead of generating them. J. Resources may be restricted: businesses can use their resources freely whereas sometimes gov/NFP have restrictions to certain activities/purposes.
I.e. they may receive a grant to build low-income housing and cannot use that money for anything else
This is where fund accounting comes into play K. No distinct ownership interests: no one directly owns a gov/NFP so the difference between assets and liabilities cannot be stockholder’s equity
This forces the financial reports to be prepared from the perspective of parties not stockholders and these users don’t care about things such as the market values of resources L. Less distinction between internal and external accounting/reporting: profit is not an important factor in neither internal nor external reporting for gov/NFPs
Budgets are used for external reporting unlike with businesses
Internal and external parties may not be different unlike businesses as well III. Characteristics of governments and NFPs that are alike to businesses but effect reporting A. Many different types of gov/NFPs: a gov can be a town/township, school district, municipality, county, special district that all make up over 90,000 govs and they can all be structured differently and have control over other things.

Accountability is therefore split into interperiod equity, budgetary and fiscal compliance, and service efforts costs and accomplishments. This helps to ensure current period revenues pay for current period services in a way that matches the budget and assess efficiency and effectiveness.
GASB statement no. 34 requires that governments prepare two sets of F/S: one on a full accrual basis and the other on a budget basis B. FASB objectives: (for NFPs) similar to governments except that budgets are not the main focus of reporting. Main users here are donors and other contributors of resources C. Service efforts and accomplishments (SEA): both FASB and GASB enforce that reporting should show information on SEA performance as this cannot be directly valued in monetary units. But this information helps users determine the entity’s effectiveness and efficiency in providing services to its citizens. SEA reports are often excluded and GASB has struggled to mandate it but encourages govs to include it in reporting. D. Do the differences matter?: users are indifferent to how the “story” is told on the F/S so long as the information is adequate. Economic consequences, however, do exist as different accounting principles could produce different budgets and a balanced budget is integral for a gov. E. FASAB: establishes the accounting standards for the federal government and individual federal agencies. It has its own objectives that strive to maintain consistency over the reporting of federal agencies

apter 2 : Fund Account

. What is a fun A. A fund is a fis repares its o 1. Gov/N 2. Numb is orga 3. Not a f classifi . Key elements of gov A. Assets: resour controls. Ex: c B. Liabilities: pre avoid. Can be vacation pay)