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Lecture note Government and not-for-profit accounting: Concepts and practices (7/e) – Chapter 1: The government and not-for-profit environment

Chapter 1 - The government and not-for-profit environment. After studying Chapter 1 you should understand characteristics that distinguish governments and not-for-profit organizations from businesses, accounting and reporting practices and their implications, the overall purpose of financial reporting. | Chapter 1 The Government and Not-for-Profit Environment © 2016 John Wiley & Sons, Inc. All rights reserved. 1 1 Thoughts to Ponder “We make a living by what we get. We make a life by what we give.” - Winston Churchill “Service to others is the rent you pay for your room here on earth.” - Mohammed Ali © 2016 John Wiley & Sons, Inc. All rights reserved. 2 Learning Objectives After studying Chapter 1 you should understand Characteristics that distinguish governments and not-for-profit organizations from businesses Accounting and reporting practices and their implications The overall purpose of financial reporting The information requirements of the primary users Objectives of financial reporting, as established by the GASB, FASB, and FASAB How differences in accounting principles affect financial reporting and can have economic consequences The institutional arrangements for establishing accounting standards for these entities © 2016 John Wiley & Sons, Inc. All rights reserved. 3 How Do | Chapter 1 The Government and Not-for-Profit Environment © 2016 John Wiley & Sons, Inc. All rights reserved. 1 1 Thoughts to Ponder “We make a living by what we get. We make a life by what we give.” - Winston Churchill “Service to others is the rent you pay for your room here on earth.” - Mohammed Ali © 2016 John Wiley & Sons, Inc. All rights reserved. 2 Learning Objectives After studying Chapter 1 you should understand Characteristics that distinguish governments and not-for-profit organizations from businesses Accounting and reporting practices and their implications The overall purpose of financial reporting The information requirements of the primary users Objectives of financial reporting, as established by the GASB, FASB, and FASAB How differences in accounting principles affect financial reporting and can have economic consequences The institutional arrangements for establishing accounting standards for these entities © 2016 John Wiley & Sons, Inc. All rights reserved. 3 How Do Governments and Not-For-Profits Compare with Businesses? Different missions Goal of government and not-for-profit is to provide services for the betterment of society Goal of business is to earn profit No direct and proportional relationship between resources provided and the benefits received. Absence of transferable ownership rights. Collective ownership by constituents. © 2016 John Wiley & Sons, Inc. All rights reserved. 4 4 How Do Governments and Not-For-Profits Compare with Businesses? The basic accounting equation For profit - based businesses, the accounting equation is as follows: Assets = Liabilities + Equity For governments, the accounting equation is: Assets - Liabilities = Net Position (Equity, aka net assets) For GNP entities, budget is very important. Budget is the culmination of the political process The budget is the key fiscal document Budgets drive accounting and financial reporting Revenues may not be linked to constituent demand or satisfaction No direct link .