Differences Between Governments And For-Profit Business Enterprises

Read Summary

The Governmental Accounting Standards Board (GASB) has identified five environmental differences between governments and for-profit business enterprises. These differences include organizational purposes, sources of revenue, potential longevity, relationship with stakeholders, and role of the budget. According to the FASB and GASB, a government is a public corporation or body corporate and politic, or an organization with certain characteristics such as popular election of officers, the power to enact and enforce a tax levy, or potential for unilateral dissolution. The mission of GASB is to establish and improve standards of state and local governmental accounting and financial reporting. Different funds are used to account for various financial activities in government, including capital projects funds for general obligation bonds, special revenue funds for taxes collected for specific purposes, enterprise funds for water treatment plant expansions, investment trust funds for endowments, private purpose trust funds for donations with no restrictions on the principal, and enterprise funds for surplus equipment sales.

Table of Content

1-2 The Governmental Accounting Standards Board’s publication “Why Governmental Accounting and Financial Reporting Is and Should be Different” identifies and describes five environmental differences between governments and for-profit business enterprises. These differences are:

  • Organizational Purposes: Governments exist to provide public services for the well-being of citizens, regardless of whether these services generate profit.
  • Sources of Revenue: Governments obtain resources through taxes and other non-exchange transactions.

The potential longevity of governments is a factor that affects their sustainability and ability to meet future demands. Governments also have a responsibility to show accountability for public funds, which relates to their relationship with stakeholders. Additionally, government budgets often have the authority of the law, limiting the spending power of public officials.The FASB and GASB define a government as public corporations and bodies corporate and politic. Other organizations can also be considered governmental if they meet certain criteria, such as popular election or appointment of controlling members for the organization’s governing body by one or more state or local governments. Additionally, organizations can be classified as governmental if they have the potential for dissolution by a government with assets reverting back to the government, or if they have the power to enact and enforce a tax levy.

This essay could be plagiarized. Get your custom essay
“Dirty Pretty Things” Acts of Desperation: The State of Being Desperate
128 writers

ready to help you now

Get original paper

Without paying upfront

According to their website (www.gasb.org), GASB’s mission is to establish and improve accounting and financial reporting standards for state and local governments. These standards aim to provide useful information for financial report users, as well as guide and educate the public, including issuers, auditors, and financial report users.

1-10 For each of the items below, identify the appropriate fund to account for the item and explain your reasoning.

a) A city government issued general obligation bonds to finance the construction of a new jail. The Governmental funds -capital projects funds would be used to account for this item as it involves financing a specific capital project by raising resources through bond issuance.

b) A state government collected a tax of $1.00 per pack of cigarettes, which is legally mandated to be used for funding health and fitness programs in public schools. The Governmental funds -other special revenue funds would be used to account for this item, as it is a specific revenue source designated for a particular purpose.

Governmental funds encompass special revenue funds. For instance, a county government allocated $1 million to enhance the water treatment plant.

Proprietary Funds comprise enterprise funds. An illustration of this is when a donor contributed investments totaling $4 million to establish an endowment for scholarships.

Fiduciary Funds may consist of investment trust funds. This can be observed when a donor supplied $50,000 to acquire newspaper and magazine subscriptions for the public library. It is not mandatory that the original principal cannot be utilized.

Another instance of Fiduciary Funds is private purpose trust. A case in point would be when a city government sold excess street maintenance trucks for $10,000.

In summary, these diverse fund types and their respective scenarios exemplify various financial transactions and resource management.

Cite this page

Differences Between Governments And For-Profit Business Enterprises. (2016, Oct 04). Retrieved from


Remember! This essay was written by a student

You can get a custom paper by one of our expert writers

Order custom paper Without paying upfront