Governmental and Nonprofit Accounting:
ENVIRONMENT AND CHARACTERISTICS
ANSWERS TO QUESTIONS
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 account for their uses and balances. 2.Budgetary control techniques—to help assure appropriations are not overexpended and all resources due the G&NP organization are received by it.
a.A fund of a government organization is an independent fiscal and accounting entity. Each fund has a separate self-balancing set of accounts in which are recorded the resources segregated for specific purposes, the related liabilities and residual equity (fund balance or net assets), and the changes therein. Financial statements typically must be presented to report the financial position and operating activities of a fund of a government.
b.As the term is generally used in commercial accounting, a "fund" merely indicates that a portion of an organization's assets is set aside and/or restricted to certain uses, e.g., a petty cash fund or a bond sinking fund. Such "funds" are not separate accounting entities, but are accounted for by establishing appropriately titled asset and liability accounts within the organization's general ledger.
c.No, the creation of a fund does not constitute authority to spend or obligate its resources. In most not-for-profit organizations, particularly governments, authority to spend or obligate fund resources is conferred only upon an appropriation(s) being made by the legislative body or governing board.
1.Governmental (expendable) funds are used to account for the financial assets; related liabilities; changes in net financial assets from revenues, expenditures, and other financing sources (uses); and the balances that may be expended in a G&NP organization's "governmental" or other" nonproprietary" activities.
2.Proprietary (nonexpendable) funds are used to account for the revenues, expenses, assets, liabilities, and equity of a G&NP organization's "business-type" activities, which in the most clear cut situations are intended to sustain their operations through user charges.
"Expenditures" may be defined as the amount of net financial resources expended during an accounting period for current operations, capital outlay, and long-term debt principal retirement and interest. (Expenditures are measured in governmental fund accounting.) "Expenses," on the other hand, are the costs of assets or services consumed (expired) during an accounting period. (Expenses are measured in proprietary fund accounting.) When equipment is purchased for instance, expenditures are incurred; but expenses are incurred during its period of use.
a.Organizational objectives. The determination of net income, earnings per share, change in owner(s) equity, and the like are very important in accounting for profit-seeking organizations. Because the basic purpose of a business is to generate revenues sufficient to cover all costs of providing the services and to generate a return for owners, these measurements relate directly to the objectives of the owners and are seen to indicate management success or failure during a given period of time.
On the other hand, a G&NP organization exists to provide certain goods or services to a community or society as a whole. The objective of such organizations is to...