Government and Not-For-Profit Accounting: Concepts and Practices, 2nd Edition

by Michael H. Granof (Univ. of Texas, Austin)

• ISBN13: 9780471361794
• ISBN10: 0471361798
• Edition: 2nd
• Format: Hardcover
• Copyright: 2001-01-01
• Publisher: Wiley

Summary

Unlike other government and not-for-profit books, this one is directed to potential users rather than preparers of financial reports. The emphasis is on demonstrating the significance of reported information and how users can interpret and analyze accounting information.

Table of Contents

The Government and Not-for-Profit Environment	1	(31)
How Do Governments and Not-for-Profits Compare with Businesses?	2	(6)
What Other Characteristics of Governments and Not-for-Profits Have Accounting Implications?	8	(2)
How Do Governments Compare with Not-for-Profits?	10	(2)
What Is the Purpose of Financial Reporting?	12	(1)
What Are the Uses of Financial Reports?	12	(4)
Employees as Statement Users	16	(1)
Who Receives Annual Reports?	17	(1)
What Are the Objectives of Financial Reporting?	17	(1)
Clash among Reporting Objectives	18	(3)
Do Differences in Accounting Principles Really Matter?	21	(1)
Testing the Theory: Do Investors Adjust for Differences in Accounting Principles?	22	(1)
Who Establishes Generally Accepted Accounting Principles?	22	(1)
Assessing the Profitability of a Football Program	23	(3)
Summary	26	(1)
Questions for Review and Discussion	27	(1)
Problems	27	(5)
Fund Accounting	32	(45)
What Is a Fund?	33	(1)
What Characterizes Funds?	33	(3)
Fund Accounting at a University Social Club	36	(3)
How Can Funds Be Combined and Consolidated?	39	(2)
What Are the Main Types of Governments' Funds?	41	(6)
What's Notable About Each Type of Government Funds?	47	(3)
What's Notable About Each Type of Proprietary Fund?	50	(3)
What's Notable About Each Type of Fiduciary Fund?	53	(1)
What Is Included in a Government's Comprehensive Annual Financial Report (CAFR)?	54	(2)
Example	56	(2)
How Does the New Model Differ from the Old?	58	(1)
How Do the Funds and Annual Reports of Not-for-Profits Differ from those of Governments?	59	(4)
Summary	63	(1)
Exercise for Review and Self-Study	63	(1)
Questions for Review and Discussion	64	(1)
Exercises	65	(3)
Problems	68	(6)
Solution to Exercise for Review and Self-Study	74	(3)
Issues of Budgeting and Control	77	(40)
What Are the Key Purposes of Budgets?	78	(1)
Why Is More Than One Type of Budget Necessary?	79	(1)
How Are Expenditures and Revenues Classified?	80	(1)
Why Are Performance Budgets Necessary?	81	(3)
What Are the Key Phases of the Budget Cycle?	84	(1)
Federal Budgetary Legerdemain	85	(1)
Misestimating Revenues and Expenditures	86	(1)
On What Basis of Accounting Are Budgets Prepared?	87	(2)
What Cautions Must Be Taken in Budget-to-Actual Comparisons?	89	(4)
Balancing the Budget by Selling Assets to Yourself	93
How Do Budgets Enhance Control?	90	(4)
What Are the Distinctive Ways Governments Record Their Budgets?	94	(1)
Budgetary Entries	94	(3)
How Does Encumbrance Accounting Prevent Overspending?	97	(1)
The Encumbrance Cycle-Year 1	97	(3)
The Encumbrance Cycle-Year 2	100	(1)
Impact of Encumbrances on Fund Balance	100	(2)
Are Budgetary and Encumbrance Entries Really Needed?	102	(1)
Summary	103	(1)
Exercise for Review and Self-Study	103	(1)
Questions for Review and Discussion	104	(1)
Exercises	104	(5)
Problems	109	(7)
Solution to Exercise for Review and Self-Study	116	(1)
Recognizing Revenue in Governmental Funds	117	(44)
Why and How Do Governments Use the Modified Accrual Basis?	118	(3)
What Are the Main Types of Nonexchange Revenues and the Limitations on How and When They Can Be Used?	121	(1)
How Should Property Taxes and Other Imposed Nonexchange Revenues Be Accounted for?	122	(2)
Property Taxes	124	(4)
Fines	128	(1)
How Should Sales Taxes and Other Derived Tax Revenues Be Accounted for?	129	(1)
Sales Taxes	129	(2)
Sales Taxes Collected by State	131	(1)
Income Taxes	132	(2)
How Should Grants and Similar Government Mandated and Voluntary Nonexchange Revenues Be Accounted for?	134	(2)
Unrestricted Grant with Time Requirement	136	(1)
Grant with Purpose Restriction	136	(1)
Reimbursement Grant	136	(1)
Unrestricted Grant with Contingency Eligibility Requirement	137	(1)
Endowment Gift	137	(1)
Pledges	137	(1)
Accounting for Gifts of Fixed Assets	138	(1)
Donations of Land for Differing Purposes	138	(2)
Food Stamps	140	(1)
On-Behalf Payments	141	(1)
How Should Sales of Fixed Assets Be Accounted for?	141	(1)
Sales of Fixed Assets	141	(1)
How Should Investment Gains and Losses Be Accounted for?	142	(1)
Investment Income	143	(2)
How Should Interest and Dividends Be Accounted for?	145	(1)
Interest Income	145	(1)
How Should Licenses, Permits, and Other Exchange Transactions Be Accounted for?	146	(1)
License Fees	146	(1)
How Should Governments Report Revenues in Their Government-Wide Statements?	147	(1)
Summary	148	(1)
Exercise for Review and Self-Study	149	(1)
Questions for Review and Discussion	150	(1)
Exercises	150	(3)
Problems	153	(6)
Solution to Exercise for Review and Self-Study	159	(2)
Recognizing Expenditures in Governmental Funds	161	(42)
How Is the Accrual Concept Modified for Expenditures?	162	(1)
How Should Wages and Salaries Be Accounted for?	163	(1)
Wages and Salaries	164	(1)
How Should Compensated Absences Be Accounted for?	164	(1)
Vacation Leave	165	(1)
Sick Leave	166	(2)
Sabbatical Leave	168	(1)
How Should Pensions be Accounted for?	169	(1)
Pension Contributions	169	(1)
How Should Claims and Judgments Be Accounted for?	170	(1)
Claims and Judgments	171	(1)
How Should the Acquisition and Use of Materials and Supplies Be Accounted for?	172	(1)
Supplies	173	(2)
How Should Prepayments Be Accounted for?	175	(1)
Prepayments	175	(1)
How Should Fixed Assets Be Accounted for?	176	(1)
Fixed Assets	177	(1)
Installment Notes	178	(1)
Capital Leases	179	(1)
How Should Interest and Principal on Long-Term Debt Be Accounted for?	180	(1)
Long-Term Debt	181	(2)
How Should Nonexchange Expenditures Be Accounted for?	183	(1)
Unrestricted Grant with Time Requirement	183	(1)
Grant with Purpose Restriction	184	(1)
Reimbursement Grant	184	(1)
How Should Interfund Transactions Be Accounted for?	185	(1)
Interfund Transfer	185	(1)
Interfund Purchase/Sale	185	(2)
What Constitutes Other Financing Sources and Uses?	187	(1)
How Should Revenues, Expenditures, and Other Financing Sources and Uses Be Reported?	188	(1)
What Is the Significance of the Current Financial Statements?-An Overview	188	(1)
The Usefulness of Reported Fund Balance	189	(1)
Summary	190	(1)
Exercise for Review and Self-Study	190	(1)
Questions for Review and Discussion	191	(1)
Exercises	192	(2)
Problems	194	(7)
Solution to Exercises for Review and Self-Study	201	(2)
Accounting for Capital Projects and Debt Service	203	(38)
How Do Governments Account for Capital Projects Funds?	204	(2)
Bond Issue Costs	206	(1)
Bond Premiums and Discounts	206	(1)
Main Types of Transactions Accounted for in Capital Projects Funds	207	(3)
How Do Governments Account for Resources Dedicated to Debt Service?	210	(2)
Main Types of Transactions Accounted for in Debt Service Funds	212	(3)
How Do Governments Handle Special Assessments?	215	(2)
Alleged Abuse of Special Assessments	217	(3)
Accounting for Special Assessments in Proprietary Funds	220	(1)
Why Is Arbitrage a Concern of Governments?	221	(2)
How Can Governments Benefit from Debt Refundings?	223	(1)
Debt Refundings	223	(2)
In-Substance Defeasance	225	(2)
Summary	227	(1)
Exercise for Review and Self-Study	228	(1)
Questions for Review and Discussion	229	(1)
Exercises	229	(3)
Problems	232	(6)
Solution to Exercise for Review and Self-Study	238	(3)
Long-Lived Assets and Investments in Marketable Securities	241	(33)
What Accounting Practices Do Governments Follow for Capital Assets?	242	(3)
Trade-Ins	245	(4)
Resolution on Infrastructure of the Government Finance Officers Association	249	(5)
What Issues Are Critical as to Investments in Marketable Securities and Other Financial Instruments?	254	(3)
From Opulence on Wall Street to Wreckage on Main Street	257	(1)
Playing the Market to Decrease Risk	258	(1)
Increasing Risk and Courting Disaster	259	(4)
Summary	263	(1)
Exercise for Review and Self-Study	263	(1)
Questions for Review and Discussion	264	(1)
Exercises	264	(3)
Problems	267	(6)
Solution to Exercise for Review and Self-Study	273	(1)
Long-Term Obligations	274	(37)
Why Is Information on Long-Term Debt Important to Statement Users?	275	(1)
Can Governments and Not-for-Profits Go Bankrupt?	276	(1)
New Jersey ``Takes Over'' One of its Cities	276	(2)
Decision Helps Clarify Concept of Municipal Bankruptcy	278	(1)
How Do Governments Account for Long-Term Obligations?	279	(2)
Accounting for Bonds in Government-Wide Statements	281	(2)
Valuing a Lottery Prize	283	(1)
What Constitutes a Government's Long-Term Debt?	284	(1)
Demand Bonds	285	(2)
Bond Anticipation Notes	287	(1)
Tax Anticipation Notes	287	(3)
Capital Leases	290	(4)
Overlapping Debt	294	(2)
What Other Information Do Users Want to Know about Outstanding Debt?	296	(2)
Debt Margin	298	(1)
What Are Bond Ratings and Why Are They Important?	299	(2)
Falling Bond Ratings Add to Governments' Woes	301	(1)
Summary	301	(1)
Exercise for Review and Self-Study	302	(1)
Questions for Review and Discussion	303	(1)
Exercises	303	(2)
Problems	305	(5)
Solution to Exercise for Review and Self-Study	310	(1)
Business-Type Activities	311	(47)
What Types of Funds Involve Business-Type Activities?	312	(1)
Why Do Governments and Not-for-Profits Engage in Business-Type Activities?	313	(1)
Should Business-Type Activities Be Accounted for Differently Than Governmental Activities?	314	(1)
What Are the Three Basic Statements of Proprietary Fund Accounting?	315	(4)
What Accounting Issues Are Unique to Enterprise Funds of Governments?	319	(5)
Revenue Bonds as Restricted Assets	324	(3)
Landfill Costs in an Enterprise Fund	327	(2)
What Are Internal Service Funds and How Are They Accounted for?	329	(12)
Eliminating Interfund Balances and Transactions	341
Internal Service Fund Accounting	330	(4)
Full Cost Pricing May Encourage Dysfunctional Decisions	334	(2)
What Special Problems Are Created When an Internal Service Fund or the General Fund Accounts for ``Self-Insurance''?	336	(1)
Insurance Premiums	337	(1)
Self-Insurance in a General Fund	338	(1)
How Are Proprietary Funds Reported?	339	(3)
What Do Users Want to Know About Revenue Debt?	342	(2)
Summary	344	(1)
Exercise for Review and Self-Study	344	(3)
Questions for Review and Discussion	347	(1)
Exercises	347	(4)
Problems	351	(6)
Solution to Exercise for Review and Self-Study	357	(1)
Fiduciary Funds and Permanent Funds	358	(49)
What Are Nonexpendable Trust Funds and How Do They Differ from Expendable Trust Funds?	359	(1)
What Are Permanent Funds and How Are They Distinguished from Fiduciary Funds?	360	(2)
Should Investment Income Be Reported in an Expendable or a Nonexpendable Fund?	362	(1)
Expendable Investment Income	362	(1)
Why Should All Nonexpendable Funds Be Accounted for on a Full Accrual Basis-And Why Aren't They?	363	(1)
Charging Depreciation	363	(2)
Should Investment Gains Be Considered Net Additions to Principal or Expendable Income?	365	(1)
Investment Gains	366	(1)
Investment Losses	367	(2)
How Can Institutions Protect Against Inflation, Yet Reap the Benefits of Current Income?	369	(1)
Fixed Rate of Return Approach	369	(1)
How Are the Main Types of Transactions Recorded in Nonexpendable Trust Funds?	370	(1)
Recording Transactions in a Permanent Fund	370	(5)
Why Are Pensions So Important?	375	(1)
How Does a Defined Contribution Plan Differ from a Defined Benefit Plan?	376	(1)
What Is the Relation Between an Employer and Its Pension Trust Funds?	377	(1)
What Issues Does a Government Employer Face in Accounting for Its Pensions?	378	(3)
Unfunded Actuarial Accrued Liability	381	(1)
Reporting Pension Costs	382	(2)
How Should the Pension Plan Be Accounted for?	384	(2)
A State Legislature Is Influenced by the Reported Pension Obligation	386	(2)
How Should Postemployment Health Care Benefits Be Accounted for?	388	(2)
What Accounting Issues Do Agency Funds Present?	390	(1)
Agency Funds	391	(2)
What Accounting Issues Do Investment Trust Funds Present?	393	(1)
Summary	394	(1)
Exercise for Review and Self-Study	395	(1)
Questions for Review and Discussion	396	(1)
Exercises	397	(3)
Problems	400	(5)
Solution to Exercise for Review and Self-Study	405	(2)
Issues of Reporting, Disclosure, and Financial Analysis	407	(43)
Why Is the Reporting Entity an Issue for Governments?	408	(1)
The Reporting Entity	408	(1)
What Criteria Have Been Established for Government Reporting Entities?	409	(2)
Financially Accountable Component Units	411	(1)
Fiscal Dependency	411	(4)
Summary of Statement No. 14	415	(2)
What Other Elements Make Up the Comprehensive Annual Financial Report?	417	(5)
What Are the Reporting Requirements for Colleges, Universities, and Other Special-Purpose Governments?	422	(5)
How Can a Government's Fiscal Condition Be Assessed?	427	(4)
Study Shows That Bond Market Understood New York's Financial Condition Despite Non-GAAP Statements	431	(9)
Summary	440	(1)
Exercise for Review and Self-Study	441	(1)
Questions for Review and Discussion	442	(1)
Exercises	442	(2)
Problems	444	(4)
Solution to Exercise for Review and Self-Study	448	(2)
Other Not-For-Profit Organizations	450	(73)
Who's In Charge?	451	(1)
What Should Be the Form and Content of Financial Statements?	452	(3)
Reporting Revenues and Expenses	455	(5)
What Are the Main Types of Contributions, and How Should Pledges Be Accounted for?	460	(4)
Beneficiary Sues to Enforce Reneged Upon Pledge	464	(1)
Pledges	465	(2)
When Should Use-Restricted Contributions Be Recognized?	467	(1)
User-Restricted Contributions	467	(1)
A Gift with Strings Attached	468	(1)
Should Contributions of Services Be Recognized?	469	(1)
Service Contributions	469	(1)
Should Receipts of Collection Items Be Recognized as Revenues?	470	(1)
Examples of Contributed Services	470	(1)
When Should Conditional Promises Be Recognized?	471	(1)
Conditional Promises	472	(1)
How Should ``Pass Through'' Contributions Be Accounted for?	472	(1)
A Federated Fund-Raising Organization	472	(1)
A Foundation that Transfers Assets to a Specified Organization	473	(1)
A Foundation that Supports a Related Organization	473	(2)
When Should Gains and Losses on Investments Be Recognized?	475	(1)
Investment Gains	475	(2)
How Should Depreciation Be Reported?	477	(1)
Depreciation	477	(1)
What Issues Does a Not-for-Profit Face in Establishing its Reporting Entity?	478	(1)
Museum of American Culture	479	(5)
What Unique Issues Do Health Care Providers Face?	484	(6)
Patient-Care Revenues	490	(1)
Capitation Fee Revenues	491	(1)
Charity Care	492	(1)
Collection of Errors Add Up to $21 Million Debacle	493	(1)
Timing Differences	494	(1)
Malpractice Claims	495	(1)
Retrospective Premiums	496	(1)
What Unique Issues Do Colleges and Universities Face?	497	(1)
Which Set of Standards Do We Follow?	498	(2)
Tuition and Fee Revenues	500	(1)
Grants	501	(1)
How Can a Not-for-Profit's Fiscal Condition Be Assessed?	502	(2)
Summary	504	(1)
Exercise for Review and Self-Testing	505	(3)
Questions for Review and Discussion	508	(1)
Exercises	508	(4)
Problems	512	(9)
Solution to Exercise for Review and Self-Testing	521	(2)
Using Cost Information to Manage and Control	523	(43)
How Are the Decision Criteria of Governments and Not-for-Profits Similar to Those of Businesses Despite Different Objectives?	524	(1)
Why Must Fixed Costs Be Distinguished from Variable Costs?	525	(1)
Average Cost	526	(1)
Why Is It Important to Identify Incremental Costs and Benefits?	527	(1)
The Foolish Overhaul	528	(1)
The Nuclear Disaster	529	(1)
Allocated Costs	530	(1)
How Can Organizations Assess the Fiscal Benefits of Contracting Out?	531	(1)
Contracting Out	532	(2)
Colleges Are Turning to Private Vendors for More and More Campus Services	534	(3)
Outsourcing Sometimes Fails to Meet Expectations	537	(1)
How Should Governments and Not-for-Profits Establish Prices?	538	(3)
Factors That Should Enter into the Pricing Decisions of a City-Operated Electric Utility	541	(1)
Allocating Cost-Conventional Means	542	(2)
Cost Allocation-Activity-Based Costing	544	(2)
How Should the Costs of Fund-Raising Activities Be Determined?	546	(1)
Experts Caution Against Careless Giving	547	(2)
Allocating Charitable Costs	549	(1)
How Can Analyses of Variance Be Used to Control Costs and Evaluate Performance?	550	(1)
Standard Costs	551	(4)
Summary	555	(1)
Exercise for Review and Self-Study	555	(1)
Questions for Review and Discussion	556	(1)
Exercises	557	(2)
Problems	559	(6)
Solution to Exercise for Review and Self-Study	565	(1)
Managing for Results	566	(39)
What Role Do Accounts Play in the Management Cycle of Governments and Other Not-For-Profits?	567	(2)
How Can the Limits of Traditional Budgets Be Overcome?	569	(2)
What Are the Characteristics of Sound Operational Objectives?	571	(3)
What Are the Perils of Establishing Operational Objectives?	574	(1)
A Classic Case of Reliance on Misspecified Objectives (Two Perspectives of the Vietnam War)	575	(1)
How Do Program Budgets Relate Expenditures to Operational Objectives?	576	(6)
How Should Service Efforts and Accomplishments Be Reported?	582	(6)
How Are Capital Expenditures Planned and Budgeted Within a Framework of Operational Objectives?	588	(2)
Benefits Are Cash Savings	590	(1)
Choosing Between Options with Similar Benefits	591	(2)
Excerpts from a Report on the Economic Costs of Alcohol and Drug Abuse and Mental Illness (ADM)	593	(3)
Summary	596	(1)
Exercise for Review and Self-Study	597	(1)
Questions for Review and Discussion	597	(1)
Exercises	598	(1)
Problems	599	(4)
Solution to Exercise for Review and Self-Study	603	(2)
Auditing Governments and Not-For-Profit Organizations	605	(37)
How Do Audits of Governments and Not-For-Profits Differ from Those of Businesses?	606	(1)
How Has the Yellow Book Influenced Governmental and Not-For-Profit Auditing?	607	(1)
What Types of Audits Do Governments Conduct?	607	(1)
What Levels of Standards Are Applicable to Financial Audits?	608	(5)
How Have the Single Audit Act and Other Pronouncements Influenced Auditing?	613	(1)
The Auditor's Dilemma	614	(1)
What Approach Do Auditors Take in Performing Single Audits?	615	(4)
What Reports Result from Single Audits?	619	(2)
What Are Performance Audits?	621	(4)
Why Performance Audit Reports Are Seldom Positive	625	(2)
Findings Must Relate to Objectives	627	(1)
Evidence Gathering	628	(3)
What Unique Ethical Issues Do Governmental and Not-For-Profit Accounting and Auditing Present?	631	(1)
Ethical Dilemma	632	(2)
Summary	634	(1)
Exercise for Review and Self-Study	635	(1)
Questions for Review and Discussion	636	(1)
Problems	636	(5)
Solution to Exercise for Review and Self-Study	641	(1)
Federal Government Accounting	642	(37)
Which Agencies Are Responsible for Federal Accounting and Reporting?	644	(3)
What Constitutes the Federal Budget?	647	(3)
What Types of Accounts Are Maintained by Federal Entities?	650	(1)
Which Entities Should Issue Financial Reports?	650	(1)
What Are the Form and Content of Current Government-Wide Federal Statements?	651	(1)
What Statements Are Required of Federal Agencies?	652	(8)
What are Other Key Features of the FASAB Model?	660	(7)
Subsidized Loan	667	(1)
Loan Guarantees	668	(1)
What Additional Steps Has the Federal Government Taken to Improve Its Fiscal Management?	669	(1)
Summary	670	(1)
Exercise for Review and Self-Study	671	(1)
Questions for Review and Discussion	671	(1)
Exercises	672	(2)
Problems	674	(4)
Solution to Exercise for Review and Self-Study	678	(1)
Glossary	679	(15)
Value Tables	694	(9)
Index	703