Acct 217 Ch01 Sol


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CHAPTER 1: INTRODUCTION TO ACCOUNTING AND FINANCIAL REPORTING FOR GOVERNMENTAL AND NOT-FOR- PROFIT ENTITIES Solutions to Questions 1-1. Government and not-for-profit organizations serve different functions in society than do business organizations. Not surprising, then, the objectives of financial reporting for these organizations, as shown in Illustration 1-2, are quite different from the objectives of business reporting. The most striking difference is the need for government and not- for-profit organizations to report on accountability , in addition to financial performance . The different functions served and different reporting objectives lead to different accounting and reporting practices. 1-2. The major characteristics that distinguish governmental and not-for-profit entities from business enterprises include: a. Receipts of significant amounts of resources from resource providers who do not expect to receive either repayment or economic benefits proportionate to the resources provided. b. Operating purposes that are other than to provide goods or services at a profit or profit equivalent. c. Absence of defined ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of residual distribution of resources in the event of liquidation of the organization. 1-3. General purpose governments differ from special purpose governments primarily in terms of the scope of their legal powers and the range of services provided. General purpose governments typically have much more power over citizens and provide a much greater range of services than do special purpose governments. 1-4. Illustration 1-1 depicts the standards-setting jurisdiction of the FASB, GASB and FASAB. As shown, the FASB has responsibility for setting accounting and financial reporting standards for business enterprises and nongovernmental not-for-profit organizations. The GASB has responsibility for setting standards for state and local governments and governmental not-for-profit organizations. The FASAB has responsibility for setting accounting and reporting standards for federal agencies and
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This note was uploaded on 04/29/2011 for the course FIN 1 taught by Professor Prakash during the Spring '11 term at IIT Bombay.

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