Differences Between Governments And For-Profit Business Enterprises

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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.

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1-2 Identify and describe the five environmental differences between governments and for-profit business enterprises as identified in the Governmental Accounting Standards Board’s Why Governmental Accounting and Financial Reporting Is and Should be Different. * Organizational Purposes: government exists for the well-being of the citizens by providing public services, whether or not the services are profitable undertakings. * Sources of Revenue: government derives many of their resources from taxes and other non-exchange transactions.

Potential Longevity: government vary rarely go out of business, this long term view of operations changes the focus on sustainability of services and the ability to meet future demands. * Relationship with Stakeholders: governments have an obligation to demonstrate accountability for public funds. * Role of the Budget: government budgets often carry the authority of the law, preventing public officials from spending their budgetary authority.

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1-4 What is the definition of a government as agreed upon by the FASB and GASB? Public corporations and bodies corporate and politic are governmental organizations. Other organizations are governmental organizations if they have one or more of the following characteristics: popular election of officers or appointment ( or approval) of a controlling majority of the members for the organization’s governing body of officials of one or more state or local governments; the potential for unilateral dissolution by a government with the net assets reverting to government; or the power to enact and enforce a tax levy. -9 Go to the GASB website (www. gasb. org). What is the mission of GASB? * To establish and improve standards of state and local governmental accounting and financial reporting that will result in the useful information for users of financial reports and guide and educate the public, including issuers, auditors, and the users of those financial reports.

1-10 For each of the items below, identify which fund would be used to account for the item and provide a justification for your answer. ) A city government issued general obligation bonds to finance the construction of a new jail. Governmental funds -capital projects funds b) A state government collected a tax of $1. 00 per pack of cigarettes which is (by law) required to be used to fund health and fitness programs in public schools.

Governmental funds -special revenue funds c) A county government expended $1 million to expand the water treatment plant. Proprietary Funds -enterprise funds ) A donor provided investments totaling $4 million to create an endowment, the earnings of which will be used to provide scholarships. Fiduciary Funds -investment trust funds e) A donor provided $50,000 to be used to purchase newspaper and magazine subscriptions for the public library. There is no requirement that the original principal may not be spent. Fiduciary -private purpose trust f) A city government sold surplus street maintenance trucks for $10,000. Proprietary Funds -enterprise funds

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


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