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    Basics of Governmental and Not-for-Profit Accounting

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    1. The traditional business model of accounting is inadequate for governments and not-for-profit organizations primarily because businesses differ from governments and not-for-profit organizations in that

    a. They have different missions
    b. They have fewer assets
    c. Their assets are intangible
    d. Taxes are a major expenditure of businesses

    2. The primary objective of a not-for-profit organization or a government is to

    a. Maximize revenues
    b. Minimize expenditures
    c. Provide services to constituents
    d. All of the above

    3. In governments, in contrast to businesses,

    a. Expenditures are driven mainly by the ability of the entity to raise revenues
    b. The amount of revenues collected is a signal of the demand for services
    c. There may not be a direct relationship between revenues raised and the demand for the entity's services
    d. The amount of expenditures is independent of the amount of revenues collected

    4. The organization responsible for setting accounting standards for state and local governments is the

    a. FASB
    b. GASB
    c. FASAB
    d. AICPA

    5 Governments differ from businesses in that they

    a. Do not raise capital in the financial markets
    b. Do not engage in transactions in which they "sell" goods or services
    c. Are not required to prepare annual financial reports
    d. Do not issue common stock

    6 Interperiod equity refers to a condition whereby

    a. Total tax revenues are approximately the same from year to year
    b. Taxes are distributed fairly among all taxpayers regardless of income level
    c. Current-year revenues are sufficient to pay for current-year services
    d. Current-year revenues cover both operating and capital expenditures

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    Solution Preview

    1. a. They have different missions: The mission of a for-profit entity is to maximize its profits, but that of a not-for-profit and governmental entity is to serve its constituents.
    2. c. Provide services to constituents: This is a follow-up to question #1.
    3. c. There may not be a direct relationship between revenues ...

    Solution Summary

    This solution contrasts the business processes, objectives of expenditures, and accounting standard-setting organizations for governmental and not-for-profit organizations as opposed to commercial enterprises. It also defines interperiod equity.