Chapter 1 Governmental and Nonprofit Accounting: Answer Key Essay

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CHAPTER 1
Governmental and Nonprofit Accounting:
ENVIRONMENT AND CHARACTERISTICS

ANSWERS TO QUESTIONS

QUESTION 1-1

a. The similarities of accounting for profit-seeking and G&NP organizations include:

1. Double-entry system of accounts. 2. Most accounting mechanics, e.g., basic transaction documents, journals, ledgers, charts of accounts. 3. Where a G&NP organization has a business-type activity, e.g., a municipal electric utility, the accounting largely parallels that for a similar private business (e.g., electric utility).

b. Among the unique aspects of G&NP organization accounting are:

1. Fund accounting—designed to separate resources according to the purposes for which they may be used and to …show more content…
Evaluating the performance of governments is extremely difficult because there is no open market supply and demand test of the value of the services that they provide. Also, the relationship between resource providers and the recipients of services is remote and indirect for G&NP organizations. Therefore, other controls must be substituted for the profit test/regulator where G&NP organizations are involved. Thus, G&NP organizations, particularly governments, are subjected to a variety of legal and administrative controls over such factors as (1) organization structure, (2) personnel policies and procedures, (3) sources of resources, (4) uses of resources, (5) accounting, (6) reporting, and (7) auditing. The most obvious result of such alternative controls is the extensive use of fund accounting and reporting and budgetary accounting and reporting by G&NP organizations

Question 1-6

1. The Governmental Accounting Standards Board (GASB) was established in 1984 as the recognized body to set authoritative standards for state and local government accounting and financial reporting. The GASB recognized the effective National Council on Governmental Accounting (NCGA) pronouncements and excerpts from certain AICPA publications as "authoritative" in 1984, and subsequently has issued numerous Statements and Interpretations.

2. The Financial Accounting Standards Board (FASB) assumed responsibility for all nonbusiness organization accounting and financial
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