Chapter 1
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical governmental entity is to earn a profit.
2. A government’s budget may be backed by the force of law.
3. Governmental entities have no need for an accounting system.
4. Governments and not-for-profits employ a system of accounting known as fund
accounting.
5. Governments and not-for-profits may never engage in business-type activities.
6. Lenders use the financial statements of governments and not-for profits just as they
would those of businesses, that is, to help assess the borrower’s credit-worthiness.
7. Financial statements, no matter how prepared, do not directly impact the economic
worth of an entity.
8. Cash flow statements are governments’ paramount financial documents.
9. Most governments budget on an accrual basis.
,10. The Governmental Accounting Standards Board established generally accepted
accounting principles for all state and local government entities, as well as all
nongovernment entities.
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governmental entities from business entities
is
a) the need to generate revenues equal to or in excess of expenditures/expenses.
b) the importance of the budget in the governing process.
c) the need to provide goods or services.
d) the correlation between revenues generated and demand for goods or services.
2. Which of the following characteristics is NOT a characteristic that may distinguish a
governmental or not-for-profit entity from a business entity?
a) There is often no direct link between revenues generated and
expenditures/expenses incurred.
b) Capital assets may neither produce revenues nor save costs.
c) Revenues may not be indicative of demand for goods and services.
d) The mission of the entity will determine the goods or services provided.
3. The most significant financial document provided by a governmental entity may be
a) the balance sheet.
b) the operating statement.
c) the operating budget.
d) the cash flow statement.
4. Which of the following statements is NOT true?
a) All governmental entities engage in similar activities.
b) There are many different types of governments.
c) Governments may engage in activities similar to activities engaged in by for-profit
entities.
, d) Managers may have a short-term focus and thereby sacrifice the long-term viability
of the entity.
5. Which of the following activities is NOT an activity in which a governmental entity might
engage?
a) Selling electric power.
b) Operating a golf course.
c) Operating a book store.
d) All of the above are activities that might be carried out by a government.
6. In which of the following activities is a not-for-profit entity least likely to engage?
a) Providing educational services.
b) Providing health-care services.
c) Providing for the national defense.
d) Retail sales of cookies.
7. To obtain a comprehensive understanding of a government’s fiscal health, a financial
analyst should obtain an understanding of which of the following?
a) All of the resources owned by the governmental entity.
b) All of the resources which may be summoned by a governmental entity.
c) Demographic data about the residents served by the governmental entity.
d) All of the above.
8. Which of the following is common to both governments and not-for-profit entities but
distinguishes these entities from for-profit entities?
a) The budget is generally the most significant financial document.
b) Revenues are not necessarily indicative of demand for goods or services.
c) There is frequently no direct link between revenues and expenses.
The Government and Not-For-Profit Environment
TRUE/FALSE (CHAPTER 1)
1. The main objective of a typical governmental entity is to earn a profit.
2. A government’s budget may be backed by the force of law.
3. Governmental entities have no need for an accounting system.
4. Governments and not-for-profits employ a system of accounting known as fund
accounting.
5. Governments and not-for-profits may never engage in business-type activities.
6. Lenders use the financial statements of governments and not-for profits just as they
would those of businesses, that is, to help assess the borrower’s credit-worthiness.
7. Financial statements, no matter how prepared, do not directly impact the economic
worth of an entity.
8. Cash flow statements are governments’ paramount financial documents.
9. Most governments budget on an accrual basis.
,10. The Governmental Accounting Standards Board established generally accepted
accounting principles for all state and local government entities, as well as all
nongovernment entities.
,MULTIPLE CHOICE (CHAPTER 1)
1. A primary characteristic that distinguishes governmental entities from business entities
is
a) the need to generate revenues equal to or in excess of expenditures/expenses.
b) the importance of the budget in the governing process.
c) the need to provide goods or services.
d) the correlation between revenues generated and demand for goods or services.
2. Which of the following characteristics is NOT a characteristic that may distinguish a
governmental or not-for-profit entity from a business entity?
a) There is often no direct link between revenues generated and
expenditures/expenses incurred.
b) Capital assets may neither produce revenues nor save costs.
c) Revenues may not be indicative of demand for goods and services.
d) The mission of the entity will determine the goods or services provided.
3. The most significant financial document provided by a governmental entity may be
a) the balance sheet.
b) the operating statement.
c) the operating budget.
d) the cash flow statement.
4. Which of the following statements is NOT true?
a) All governmental entities engage in similar activities.
b) There are many different types of governments.
c) Governments may engage in activities similar to activities engaged in by for-profit
entities.
, d) Managers may have a short-term focus and thereby sacrifice the long-term viability
of the entity.
5. Which of the following activities is NOT an activity in which a governmental entity might
engage?
a) Selling electric power.
b) Operating a golf course.
c) Operating a book store.
d) All of the above are activities that might be carried out by a government.
6. In which of the following activities is a not-for-profit entity least likely to engage?
a) Providing educational services.
b) Providing health-care services.
c) Providing for the national defense.
d) Retail sales of cookies.
7. To obtain a comprehensive understanding of a government’s fiscal health, a financial
analyst should obtain an understanding of which of the following?
a) All of the resources owned by the governmental entity.
b) All of the resources which may be summoned by a governmental entity.
c) Demographic data about the residents served by the governmental entity.
d) All of the above.
8. Which of the following is common to both governments and not-for-profit entities but
distinguishes these entities from for-profit entities?
a) The budget is generally the most significant financial document.
b) Revenues are not necessarily indicative of demand for goods or services.
c) There is frequently no direct link between revenues and expenses.
