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Preface vi
1 The Government and Not-For-Profit Environment 1
How Do Governments and Not-For-Profits Compare With Businesses? 2
What Other Characteristics of Governments and Not‐For‐Profits Have Accounting Implications? 8
How Do Governments Compare With Not‐For‐Profits? 11
What are the Overall Purposes of Financial Reporting? 12
Who are the Users, and What are the Uses of Financial Reports? 13
What are the Specific Objectives of Financial Reporting as Set Forth by The GASB and The FASB? 16
Do Differences in Accounting Principles Really Matter? 20
Who Establishes Generally Accepted Accounting Principles? 21
Summary 26
Key Terms in This Chapter 26
Questions For Review and Discussion 26
Exercises 27
Continuing Problem 30
Problems 30
Questions For Research, Analysis, and Discussion 36
2 Fund Accounting 37
What is a Fund? 37
What are the Key Elements of Government Financial Statements? 38
What Characterizes Funds? 39
How Can Funds Be Combined and Consolidated? 47
What are the Main Types of a Government’s Funds? 54
What’s Notable about Each Type of Governmental Fund? 57
What’s Notable about Each Type of Proprietary Fund? 60
What’s Notable about Each Type of Fiduciary Fund? 66
What is Included in a Government’s Comprehensive Annual Financial Report (CAFR)? 67
How Do the Funds and Annual Reports of Not‐For‐Profits Differ from Those of Governments? 71
Summary 74
Key Terms in This Chapter 76
Exercise For Review and Self-Study 76
Questions For Review and Discussion 77
Exercises 78
Continuing Problem 82
Problems 83
Questions For Research, Analysis, and Discussion 91
Solution to Exercise For Review and Self-Study 91
3 Issues of Budgeting and Control 95
What are the Key Purposes of Budgets? 96
Why is More Than One Type of Budget Necessary? 96
How are Expenditures and Revenues Classified? 98
Why are Performance Budgets Necessary? 99
What are the Key Phases For the Budget Cycle? 101
On What Basis of Accounting are Budgets Prepared? 106
What Cautions Must Be Taken in Budget‐to‐Actual Comparisons? 109
How Does Budgeting in Not‐For‐Profit Organizations Compare with That in Governments? 112
How do Budgets Enhance Control? 113
What are the Distinctive Ways Governments Record their Budgets? 114
An Alternative Method: Crediting or Debiting the Difference Between Revenues and Expenditures to “Budgetary Control” 117
How Does Encumbrance Accounting Prevent Overspending? 118
Are Budgetary and Encumbrance Entries Really Needed? 123
Summary 124
Key Terms in This Chapter 124
Exercise For Review and Self‐Study 124
Questions For Review and Discussion 125
Exercises 126
Continuing Problem 132
Problems 132
Questions For Research, Analysis, and Discussion 142
Solution to Exercise For Review and Self‐Study 143
4 Recognizing Revenues in Governmental Funds 145
Why and How Do Governments Use the Modified Accrual Basis? 146
What are the Main Types of Nonexchange Revenues and the Limitations on How and When They Can Be Used? 149
How Should Property Taxes and Other Imposed Nonexchange Revenues Be Accounted For? 150
How Should Sales Taxes and Other Derived Tax Revenues Be Accounted For? 156
What are Tax Abatements and Why and How Must They Be Disclosed? 161
How Should Grants and Similar Government-Mandated and Voluntary Nonexchange Revenues Be Accounted For? 162
How Should Sales of Capital Assets Be Accounted For? 168
How Should Licenses, Permits, and Other Exchange Transactions Be Accounted For? 170
How Should Governments Report Revenues in Their Government-Wide Statements? 171
Summary 171
Key Terms in This Chapter 173
Exercise For Review and Self-Study 173
Questions For Review and Discussion 173
Exercises 174
Continuing Problem 180
Problems 180
Questions For Research, Analysis, and Discussion 188
Solution to Exercise For Review and Self‐Study 189
5 Recognizing Expenditures in Governmental Funds 191
How is The Accrual Concept Modified For Expenditures? 192
How Should Compensated Absences Be Accounted For? 195
How Should Pensions and Other Postemployment Benefits Be Accounted for? 199
How Should Claims and Judgments Be Accounted For? 200
How Should the Acquisition and Use of Materials and Supplies Be Accounted For? 202
How Should Prepayments Be Accounted For? 205
How Should Capital Assets Be Accounted For? 205
How Should Interest and Principal on Long-Term Debt Be Accounted For? 208
How Should Nonexchange Expenditures be Accounted For? 211
How Should Interfund Transactions Be Accounted For? 213
What Constitutes other Financing Sources and Uses? 215
How Should Revenues, Expenditures, and Other Financing Sources and Uses be Reported? 216
What Is the Significance of the Current Financial Governmental Fund Statements? An Overview 217
Summary 217
Key Terms in This Chapter 218
Exercise For Review and Self-Study 219
Questions For Review and Discussion 219
Exercises 220
Continuing Problem 226
Problems 227
Questions For Research, Analysis, and Discussion 235
Solution to Exercise For Review and Self-Study 235
6 Accounting For Capital Projects and Debt Service 239
How do Governments Account For Capital Projects Funds? 240
How do Governments Account For Resources Dedicated to Debt Service? 246
How do Governments Handle Special Assessments? 251
Accounting For Special Assessments in Proprietary Funds 254
How Can Governments Benefit from Debt Refundings? 257
Summary 261
Key Terms in This Chapter 262
Exercise For Review and Self‐Study 262
Questions For Review and Discussion 263
Exercises 264
Continuing Problem 269
Problems 270
Questions For Research, Analysis, and Discussion 280
Solution to Exercise For Review and Self‐Study 280
7 Capital Assets and Investments in Marketable Securities 284
What Accounting Practices Do Governments Follow For General Capital Assets? 285
Why and How Should Governments Report Infrastructure? 289
How Should Governments Account For Assets That are Impaired? 296
What Issues are the Critical Issues with Respect to Marketable Securities and Other Investments? 298
Summary 307
Key Terms in this Chapter 308
Exercise For Review and Self-Study 308
Questions For Review and Discussion 309
Exercises 309
Continuing Problem 313
Problems 314
Questions For Research, Analysis, and Discussion 323
Solution to Exercise For Review and Self-Study 323
8 Long-Term Obligations 325
Why is Information on Long-Term Debt Important to Statement Users? 326
Can Governments and Not-For-Profits Go Bankrupt? 326
How Do Governments Account For Long-Term Obligations? 328
What Constitutes A Government’s Long-Term Debt? 331
What Other Information Do Users Want to Know About Outstanding Debt? 346
What are Bond Ratings, and Why are They Important? 349
Summary 350
Key Terms in this Chapter 350
Exercise For Review and Self-Study 351
Questions For Review and Discussion 351
Exercises 352
Continuing Problem 358
Problems 358
Questions For Research, Analysis, and Discussion 366
Solution to Exercise For Review and Self-Study 366
9 Business-Type Activities 368
What Types of Funds Involve Business-Type Activities? 369
Why Do Governments and Not-For-Profits Engage in Business-Type Activities? 369
Should Business-Type Activities be Accounted For Differently than Governmental Activities? 370
What are the Three Basic Statements of Proprietary Fund Accounting? 372
What Accounting Issues are Unique to Enterprise Funds of Governments? 376
What are Internal Service Funds, and How are they Accounted For? 386
How are Proprietary Funds Reported? 396
Summary 401
Key Terms in this Chapter 402
Exercise For Review and Self-Study 403
Questions For Review and Discussion 403
Exercises 406
Continuing Problem 411
Problems 411
Questions For Research, Analysis, and Discussion 421
Solution to Exercise For Review and Self-Study 421
10 Pensions and Other Fiduciary Activities 423
Why is Pension Accounting so Important? 423
How do Defined Contribution Plans Differ from Defined Benefit Plans? 425
What are the Distinctions Among Single, Agent Multiple-Employer, and Cost-Sharing Plans? 428
What is the Relationship Between an Employer and its Pension Plan? 428
What is the Underlying Rationale For the Gasb Approach? 429
How Should the Employer Measure its Pension Obligation? 429
How Should the Pension Expense in Full Accrual Statements be Determined? 431
How Should the Pension Expenditure in Governmental Funds be Determined? 436
What Special Problems do Multiple-Employer Cost-Sharing Plans Pose? 436
How Should the Pension Plan be Accounted For? 437
What Types of Disclosures are Required? 439
How Should Postemployment Benefits other than Pensions (Opeb) be Accounted For? 440
What are Fiduciary Funds? 441
Should Investment Income of a Permanent Fund be Reported in the Permanent Fund Itself or the Beneficiary Fund 448
Summary 449
Key Terms in this Chapter 450
Exercise For Review and Self-Study 450
Questions For Review and Discussion 452
Exercises 452
Continuing Problem 456
Problems 456
Questions For Research, Analysis, and Discussion 463
Solution to Exercise For Review and Self-Study 463
11 Issues of Reporting, Disclosure, and Financial Analysis 465
How Can a Government Prepare Government‐Wide Statements from Fund Statements? 465
Why is the Reporting Entity an Issue For Governments? 467
What Criteria Have Been Established For Government Reporting Entities? 468
What Other Elements Make Up the Comprehensive Annual Financial Report? 477
What are the Reporting Requirements For Special‐Purpose Governments? 481
How Can A Government’s Fiscal Condition be Assessed? 483
Drawing Conclusions 501
Summary 501
Key Terms in This Chapter 502
Exercise For Review and Self‐Study 502
Questions For Review and Discussion 503
Exercises 504
Continuing Problem 509
Problems 510
Questions For Research, Analysis, and Discussion 516
Solution to Exercise For Review and Self-Study 516
12 Not-For-Profit Organizations 519
Who’s In Charge? 519
What Should be the Form and Content of Financial Statements? 520
What is an Endowment? 523
What are the Main Types of Contributions, and How Should Pledges be Accounted For? 532
When Should Use-Restricted (Purpose-Restricted) Contributions Be Recognized? 538
Should Contributions of Services be Recognized? 540
Should Receipts of Collection Items Be Recognized As Revenues? 541
When Should Conditional Promises be Recognized? 542
How Should “Pass-Through” Contributions be Accounted For? 543
When Should Gains and Losses on Investments be Recognized? 545
Should Endowment Gains be Considered Net Additions to Principal or Expendable Income? 546
What are Split Interest Agressements, and How Should They be Accounted For? 548
How Should Depreciation be Reported? 549
What Issues Does a Not-For-Profit Face in Establishing its Reporting Entity? 550
How Should the Costs of Fund-Raising Activities be Determined? 558
Criteria For Allocating a Portion of Costs to Program or Management Functions 558
How Can a Not-For-Profit’s Fiscal Condition be Assessed? 561
Summary 564
Key Terms in this Chapter 565
Exercise For Review and Self-Study 565
Questions For Review and Discussion 568
Exercises 569
Problems 575
Solution to Exercise For Review and Self-Study 580
13 Colleges and Universities 581
What Unique Issues do Colleges and Universities Face? 581
Accounting For Revenues and Expenses 591
Other Issues 595
Evaluating the Fiscal Wherewithal of Colleges and Universities 603
Summary 605
Key Terms in this Chapter 605
Exercise For Review and Self-Study 605
Questions For Review and Discussion 608
Exercises 608
Problems 612
Solution to Exercise For Review and Self-Study 618
14 Health Care Providers 620
What Unique Issues do Health Care Providers Face? 622
What are the Key Differences Between Private Not-For-Profit and Government Health-Care Providers? 623
What are The Basic Financial Statements? 623
How are Key Revenues and Expenses Recognized? 628
How can the Fiscal Wherewithal of Health-Care Organizations be Evaluated? 638
Summary 641
Key Terms in this Chapter 642
Exercise For Review and Self-Study 642
Questions For Review and Discussion 642
Exercises 643
Problems 649
Solution to Exercise For Review and Self-Study 655
15 Auditing Governments and Not‐For‐Profit Organizations 656
How do Audits of Governments and Not‐For‐Profits Differ from Those of Businesses? 657
How has the Yellow Book Influenced Governmental and Not‐For‐Profit Auditing? 657
What Types Of Audits Do Governments Conduct? 658
What Levels of Standards are Applicable to all Engagements? 659
How Have the Single‐Audit Act and other Pronouncements Influenced Auditing? 670
What Approach do Auditors Take in Performing Single Audits? 672
What Reports Result from Single Audits? 675
Summary 680
Key Terms in this Chapter 681
Exercise For Review and Self‐Study 681
Questions For Review and Discussion 682
Exercises 683
Problems 685
Cases in Ethics 690
Solution to Exercise For Review and Self-Study 692
16 Federal Government Accounting 694
Which Agencies are Responsible For Federal Accounting and Reporting? 697
What Constitutes The Federal Budget? 699
What Constitutes the Federal Government Reporting Entity? 701
What are the Form and Content of Government‐Wide Federal Statements? 702
What Types of Accounts are Maintained by Federal Entities? 712
What Statements are Required of Federal Agencies? 712
What Else Constitutes the Federal Government’s Reporting System 732
What are the key International Trends in Governmental Accounting? 733
Summary 735
Key Terms in this Chapter 736
Exercise For Review and Self‐Study 736
Questions For Review and Discussion 737
Exercises 738
Problems 742
Solution to Exercise For Review and Self-Study 749
Glossary 750
Value Tables 770
Index 779
