Wednesday, 4 January 2017



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 The Government and Not-For-Profit Environment
  1. The main objective of a typical governmental entity is to earn a profit.
  1. A government’s budget may be backed by the force of law.
  1. Governmental entities have no need for an accounting system.
  1. Governments and not-for-profits employ a system of accounting known as fund accounting.
  1. Governments and not-for-profits may never engage in business-type activities.
  1. Lenders use the financial statements of governments and not-for profits just as they would those of businesses, that is, to help assess the borrower’s credit-worthiness.
  1. Financial statements, no matter how prepared, do not directly impact the economic worth of an entity.
  1. Cash flow statements are governments’ paramount financial documents.
  1. Most governments budget on an accrual basis.
  1. The Governmental Accounting Standards Board established generally accepted accounting principles for all state and local government entities, as well as all nongovernment entities.
1.    A primary characteristic that distinguishes governmental entities from business entities is
a)     the need to generate revenues equal to or in excess of expenditures/expenses.
b)    the importance of the budget in the governing process.
c)     the need to provide goods or services.
d)    the correlation between revenues generated and demand for goods or services.
2.   Which of the following characteristics is NOT a characteristic that may distinguish a governmental or not-for-profit entity from a business entity?
a)     There is often no direct link between revenues generated and expenditures/expenses incurred.
b)    Capital assets may neither produce revenues nor save costs.
c)     Revenues may not be indicative of demand for goods and services.
d)    The mission of the entity will determine the goods or services provided.
3.   The most significant financial document provided by a governmental entity may be
a)     the balance sheet.
b)    the operating statement.
c)     the operating budget.
d)    the cash flow statement.
4.   Which of the following statements is NOT true?
a)     All governmental entities engage in similar activities.
b)    There are many different types of governments.
c)     Governments may engage in activities similar to activities engaged in by for-profit entities.
d)    Managers may have a short-term focus and thereby sacrifice the long-term viability of the entity.
5.   Which of the following activities is NOT an activity in which a governmental entity might engage?
a)     Selling electric power.
b)    Operating a golf course.
c)     Operating a book store.
d)    All of the above are activities that might be carried out by a government.
6.    In which of the following activities is a not-for-profit entity least likely to engage?
a)     Providing educational services.
b)    Providing health-care services.
c)     Providing for the national defense.

d)    Retail sales of cookies.
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