, SOLUTION MANUAL FOR Financial Management
for Public, Health, and Not-for-Profit Organizations
Eighth Edition Finkler
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
,1-1 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
Chapter 1
INTRODUCTION
TO
FINANCIAL
MANAGEMENT
Questions for Discussion
1-1. Financial management is the subset of management that focuses on generating financial
information that can improve decisions. The decisions are oriented toward achieving the various
goals of the organization while maintaining a satisfactory financial situation. Financial
management encompasses the broad areas of accounting and finance.
1-2. In proprietary, or for-profit, organizations, an underlying goal is to maximize the wealth of the
owners of the organization.
1-3. In public service organizations, decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation.
1-4. Accounting is a system for keeping track of the financial status of an organization and the financial
results of its activities. It has often been referred to as the language of business. The vocabulary
used by accounting is the language of nonbusiness organizations as well.
1-5. Accounting is subdivided into two major areas: managerial accounting and financial accounting.
Managerial accounting relates to generating any financial information that managers can use to
improve the future results of the organization. This includes techniques designed to generate any
financial data that might help managers make more effective decisions. Major aspects of
managerial accounting relate to making financial plans for the organization, implementing those
plans, and then working to ensure that the plans are achieved. Some examples of managerial
accounting include preparing annual operating budgets, generating information for use in making
major investment decisions, and providing the data needed to decide whether to buy or lease a
major piece of equipment. Financial accounting provides retrospective information. As events that
have financial implications occur they are recorded by the financial accounting system. From time
to time (usually monthly, quarterly, or annually), the recorded data are summarized and reported to
interested users. The users include both internal managers and people outside the organization.
Those outsiders include those who have lent or might lend money to the organization (creditors),
those who might sell things to the organization (called suppliers or vendors), and other interested
parties. These interested parties may include those with a particular interest in public service
organizations, such as regulators, legislators, and citizens. Financial reports provide information on
the financial status of the organization at a specific point in time, as well as reporting the past
results of the organization’s operations (i.e., how well it has done from a financial viewpoint).
,Chapter 1: Introduction to Financial Management 1-2
1-6. Finance focuses on the alternative sources and uses of the organization’s financial resources.
Obtaining funds when needed from appropriate sources and the deployment of resources within
the organization fall under this heading. In addition, finance involves the financial markets (such
as stock and bond markets) that provide a means to generating funds for organizations.
1-7. Yes. Achieving the goals of the organization requires financial planning. Financial management
provides information for managers to use in making their decisions. It helps managers by
providing information on the likely financial impact of each proposed alternative. It also provides
information about financial stability, efficiency, and effectiveness.
1-8. Clearly, we might expect some public service organizations that are proprietary, such as some
hospitals, to earn profits. But what about other public service organizations such as charities? They
should make a profit as well. Profits provide a safety margin against unexpected costs, provide
resources to replace buildings and equipment, and to expand and improve services.
1-9. Federal government (see text Figure 1-1)
Individual income taxes
Social insurance taxes
Corporate income tax
State and local government (see text Figure 1-4)
Sales and gross receipts tax
Federal government
Property taxes
Individual income taxes
Health sector (see text Figure 1-6)
Private insurance
Medicare
Medicaid
Other government programs
Not-for-profit sector (see text)
Private payments for goods and services
Government payments for goods and services
Donations
1-10. Federal government spending exceeded $6 trillion in 2020 and state and local government
spending was more than $3 trillion in 2018. In contrast, the GDP was $21 trillion in 2020. For
more up to date information, examine the statistical tables of the most recent Economic Report of
the President, which is available online.
1-11. The reported surplus includes both on and off budget items. Social security taxes represent an off
budget item that until recently raised more revenue than was spent on social security payments.
The surplus in this area offset other government losses, and even resulted in an overall surplus for
,1-3 Instructor’s Manual to Accompany Financial Management for Public, Health, and Not-for-Profit Organizations
the federal government. This is no longer the case, and, over time, trust fund resources will be
used up to provide benefits. As the federal government will not have access to the excess resources
from social security, it will have to borrow and increase the total level of federal debt, unless
revenues or spending are changed.
1-12. Sometimes gifts come with strings attached. If the conditions of the gift create a burden that the
organization does not want to accept, or somehow requires the organization to work in opposition
to its mission, it might turn down the gift.
1-13. The World Bank has defined NGOs as "private organizations that pursue activities to relieve
suffering, promote the interests of the poor, protect the environment, provide basic social services,
or undertake community development" (World Bank Operational Directive 14.70). NGOs are
quite similar to the not-for-profit organizations. They are primarily mission-focused rather than
profit-focused. NGOs fall into three main categories: community-based, national, and
international.
,2-1 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
Chapter 2
PLANNING
FOR
SUCCESS:
BUDGETING
QUESTIONS FOR DISCUSSION
2-1. Planning helps the organization by causing its employees to think ahead and anticipate change.
This is done by establishing specific goals and objectives, communicating those objectives to the
individuals who must achieve them, forecasting future events, developing alternatives, selecting
from among alternatives, and coordinating activities. The activities are summarized in a
document called a budget. The budget describes what we hope to achieve and the resources that
will be used to carry out the organization’s activities.
2-2. The organization’s mission represents its reason for existence. For public, health, and not-for-
profit organizations, finances often become a means to an end, rather than the end itself. This
mission cannot solely be making profits. Financial management must help balance the focus on
profit with the public service elements of the organization’s mission.
2-3. Strategic plans translate the mission of the organization into an approach or set of approaches
that will be used to accomplish the mission, and a broad set of goals that need to be attained to
achieve the mission. Strategic plans set the organization’s long-term direction. They often do not
have specific financial targets. However, they set the stage for the specific, detailed budgets that
will be established to achieve the organization’s goals.
2-4. Whereas the strategic plan establishes goals, the long-range plan considers how to achieve those
goals. Long-range plans establish the major activities that will have to be carried out in the
coming three to five years. This process links the strategic plan to the day-to-day activities of the
organization. Organizations that do not prepare a long-range plan are often condemned to only
sustain current activities, at best.
2-5. Budgets establish the amount of resources that are available for specific activities. However,
budgets do not merely limit the resources that can be spent. They represent the detailed plan that
supports the organization’s efforts to achieve its mission, and help the organization determine
and achieve its goals and objectives. The budgeting process is one of exploring possibilities.
Organizations determine what things they can and cannot do. They examine alternatives and
choose those that are likely to yield the best results. They become attuned to possible problems
and can work to find solutions. Budgeting forces managers to think ahead, to have clear
expectations against which to measure performance, and to coordinate the activities of the
organization so that everyone is working toward a common purpose.
Budgets are also used to control results. That is, budgets not only create plans, but they are
also used to help accomplish those plans. This is done by comparing actual results to the budget.
Looking at results, we can assess what needs to be corrected. How good a job did the
,Chapter 2: Planning for Success: Budgeting 2-2
organization’s management do? How well did the organization itself do? In order to evaluate
performance, one must have a standard or benchmark to compare with actual results. The budget
establishes the organization’s expectations.
2-6. An organization may consider undertaking an activity that was not planned for when the annual
budget was prepared. At any time an organization can prepare a special budget for a specific
purpose. Appropriate approval should be obtained before implementing the budget.
2-7. An organization’s budgets are often organized into a strategic plan, long-range plan, master
budget, and special purpose budgets.
2-8. When an individual is only responsible for a small pience of the budget, that person may be
unwilling to compromise on issues that might benefit the organization overall. As a result,
different individuals might know the organization’s goal, but be unwilling to make adjustments
to their own area to achieve these goals.
2-9. Budgets present specific, measurable goals. An individual is much more likely to work
efficiently if there is a target to shoot for, assuming that the target is not unrealistic.
2-10. Most employees would prefer salaries that are substantially larger than the amounts they are
currently receiving. Organizations lack the revenues to pay for those raises. Most managers
would like more office space with new furniture and remodeled facilities. They would certainly
like more staff to carry out existing functions. Organizations must make choices concerning how
to spend their limited resources.
2-11. Depending on the specific organization, the volume of services provided may have plunged or
soared. This would have resulted in substantially more or less revenues than expected. If
revenues plunged, then we would have had more staff than needed, without the resources to pay
that staff. We may have found ourselves unexpectly unable to pay rent on our facilities. Even if
revenues were up, we may have been faced with soaring costs for items in short supply. A
budget is a very important tool. However, we should never assume that it tells us exactly what
will happen. Managers need to be flexible, observe events that may cause actual events to differ
from the budget, and be prepared to act quickly to take mitigating actions.
2-12. It is very tempting for a manager to see significant variations from the budget, and want to revise
the budget. Generally once a budget has been approved by the governing body of the
organization we do not go back and revise the official budget, even if we see significant
variations from the budget. However, as a manager starts to see that something has happened
which will make results very different from budgeted expectations, the manager has to act to
minimize the negative impacts of the changes on the organization. For example, if you manage a
museum, and the number of customers to your museum café has plunged, you have to make
adjustments to staffing and food purchases to minimize the losses that you will incur. If
revenues are insufficient to pay rent, you have to negotiate with your landlord for a moratorium
on rent payments. If you see that there is no way you can cover even severely reduced costs
given your drop in customer volume, you need to quickly gear up fund-raising activities to bring
in more donations to offset losses in sales. The budget is still a valuable tool, because by
,2-3 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
comparing your original expectations to the actuality you can determine things such as how
much additional donations you will need to keep the organization afloat.
2-13. The manager should make sure that it is in the staff’s best interests to do the things that are in the
organization’s best interests. The key is to establish a means of making the normally divergent
desires of the organization and its employees become convergent, or congruent. Organizations
often achieve congruence by setting up a system of incentives.
2-14. Financial incentives include retaining one’s job and receiving good raises and bonuses. Bonus
systems have a variety of problems. Some bonus systems reward all employees if spending is
reduced. This is good unless workers can restrict volume, thus reducing the number of units of
service provided in order to save money. Such behavior would likely reduce revenues by a
greater amount than it would save costs. Also, if everyone gets a bonus, then no one feels that
individual actions have much impact, and each individual may feel that she or he does not have
to work particularly hard to reap the benefits of the bonus. If bonuses are given only to some
employees, it may create jealousy and discontent. It is also possible that it may create a
competitive environment in a situation in which teamwork is needed to provide quality care.
There are incentive alternatives to bonuses; for example, a letter from supervisor to subordinate.
In the real world, praise is both cheap and, in many cases, effective. On the other hand, criticism,
especially in writing, can have a stinging effect that managers will work hard to avoid in the
future.
2-15. If targets are placed out of reach, people probably will not stretch to their utmost limits to come
as close to the target as possible. When people work extremely hard and then fail, they often
question why they bothered to work so hard. If hard work results in failure to achieve the target,
then why not ease off? If you are going to fail anyway, must it be so painful?
2-16. (1) The budget is first prepared. (2) After review by the body with adoption authority, it is
adopted, either with or without changes. (3) Once approved, the budget is implemented. It is the
responsibility of the management of the organization or the executive branch of the government
to assure that the adopted budget is carried out. (4) Finally, the results must be evaluated.
Accountability is an element of this evaluation.
2-17. In some organizations, support and revenues are only acknowledged if they have been received
in cash. In those cases, expenses are recognized when they have been paid. For organizations that
record their revenues and expenses in that way, the cash budget would be identical to the
operating budget. They are said to use a cash basis of accounting. In contrast, if revenue is
recorded in the year the service is provided, whether cash has been received yet or not, then the
organization is said to be using an accrual basis of accounting.
Cash accounting is easier, but does it enable us to understand how well our organization is
doing? With accrual accounting we accrue, or anticipate, the eventual receipt of money for
services provided, as well as recording expenses for resources consumed, even if they have not
yet been paid for. When accrual accounting is used, the operating budget gives us a good idea of
how profitable we expect the organization to be. However, it does not give an accurate idea of
how much cash we will have.
,Chapter 2: Planning for Success: Budgeting 2-4
2-18. Modified cash is a system that treats most revenues and expenses on a cash basis. However,
capital acquisitions are depreciated over time, rather than all being treated as an expense in the
year cash is paid for them.
2-19. The budget process can be quite complicated and time consuming. The process may take one to
three months in small organizations and four to six months or even longer in larger ones. In order
to assure that the budget is ready for adoption sufficiently early to be implemented at the start of
the coming year, many organizations prepare a budget calendar or timeline. Government
timelines are often set by law or regulation.
PROBLEMS – SEE EXCEL FILES FOR OTHER PROBLEM SOLUTIONS
2-21. 4
3
, 2-5 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
2-22. January 31, 2020 Market Close S&P 500 Index value: 3327.71
(Note the market close value on Jan. 31 is the value at the start of the day on February 1.
August 31, 2021 Market Close S&P 500 Index value: 4522.68
Change in S&P 500: 4522.68 – 3327.71 = 1194.97
Percent Change: 1194..71 x 100 = 35.9%
Endowment Start: $100 million
Endowment Change: $100 million = 35.9% = $35.9 million
Endowment End: $135.9 million.
Clearly, organizations with significant endowments were in a position to sell some of the gains
on their endowment over the course of the pandemic to help them survive even if their revenues
were dropping significantly.
While many organizations use the interest and dividends earned on their endowment to help
them provide marginally more services each year, an endowment also serves a vital safety
function for the organization, providing a potential alternative source of resources to help the
organization survive hard times.
2-23
1. Earns
Uses
2. depreciation
3. cash or cash flows; or the full project life
for Public, Health, and Not-for-Profit Organizations
Eighth Edition Finkler
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
,1-1 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
Chapter 1
INTRODUCTION
TO
FINANCIAL
MANAGEMENT
Questions for Discussion
1-1. Financial management is the subset of management that focuses on generating financial
information that can improve decisions. The decisions are oriented toward achieving the various
goals of the organization while maintaining a satisfactory financial situation. Financial
management encompasses the broad areas of accounting and finance.
1-2. In proprietary, or for-profit, organizations, an underlying goal is to maximize the wealth of the
owners of the organization.
1-3. In public service organizations, decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation.
1-4. Accounting is a system for keeping track of the financial status of an organization and the financial
results of its activities. It has often been referred to as the language of business. The vocabulary
used by accounting is the language of nonbusiness organizations as well.
1-5. Accounting is subdivided into two major areas: managerial accounting and financial accounting.
Managerial accounting relates to generating any financial information that managers can use to
improve the future results of the organization. This includes techniques designed to generate any
financial data that might help managers make more effective decisions. Major aspects of
managerial accounting relate to making financial plans for the organization, implementing those
plans, and then working to ensure that the plans are achieved. Some examples of managerial
accounting include preparing annual operating budgets, generating information for use in making
major investment decisions, and providing the data needed to decide whether to buy or lease a
major piece of equipment. Financial accounting provides retrospective information. As events that
have financial implications occur they are recorded by the financial accounting system. From time
to time (usually monthly, quarterly, or annually), the recorded data are summarized and reported to
interested users. The users include both internal managers and people outside the organization.
Those outsiders include those who have lent or might lend money to the organization (creditors),
those who might sell things to the organization (called suppliers or vendors), and other interested
parties. These interested parties may include those with a particular interest in public service
organizations, such as regulators, legislators, and citizens. Financial reports provide information on
the financial status of the organization at a specific point in time, as well as reporting the past
results of the organization’s operations (i.e., how well it has done from a financial viewpoint).
,Chapter 1: Introduction to Financial Management 1-2
1-6. Finance focuses on the alternative sources and uses of the organization’s financial resources.
Obtaining funds when needed from appropriate sources and the deployment of resources within
the organization fall under this heading. In addition, finance involves the financial markets (such
as stock and bond markets) that provide a means to generating funds for organizations.
1-7. Yes. Achieving the goals of the organization requires financial planning. Financial management
provides information for managers to use in making their decisions. It helps managers by
providing information on the likely financial impact of each proposed alternative. It also provides
information about financial stability, efficiency, and effectiveness.
1-8. Clearly, we might expect some public service organizations that are proprietary, such as some
hospitals, to earn profits. But what about other public service organizations such as charities? They
should make a profit as well. Profits provide a safety margin against unexpected costs, provide
resources to replace buildings and equipment, and to expand and improve services.
1-9. Federal government (see text Figure 1-1)
Individual income taxes
Social insurance taxes
Corporate income tax
State and local government (see text Figure 1-4)
Sales and gross receipts tax
Federal government
Property taxes
Individual income taxes
Health sector (see text Figure 1-6)
Private insurance
Medicare
Medicaid
Other government programs
Not-for-profit sector (see text)
Private payments for goods and services
Government payments for goods and services
Donations
1-10. Federal government spending exceeded $6 trillion in 2020 and state and local government
spending was more than $3 trillion in 2018. In contrast, the GDP was $21 trillion in 2020. For
more up to date information, examine the statistical tables of the most recent Economic Report of
the President, which is available online.
1-11. The reported surplus includes both on and off budget items. Social security taxes represent an off
budget item that until recently raised more revenue than was spent on social security payments.
The surplus in this area offset other government losses, and even resulted in an overall surplus for
,1-3 Instructor’s Manual to Accompany Financial Management for Public, Health, and Not-for-Profit Organizations
the federal government. This is no longer the case, and, over time, trust fund resources will be
used up to provide benefits. As the federal government will not have access to the excess resources
from social security, it will have to borrow and increase the total level of federal debt, unless
revenues or spending are changed.
1-12. Sometimes gifts come with strings attached. If the conditions of the gift create a burden that the
organization does not want to accept, or somehow requires the organization to work in opposition
to its mission, it might turn down the gift.
1-13. The World Bank has defined NGOs as "private organizations that pursue activities to relieve
suffering, promote the interests of the poor, protect the environment, provide basic social services,
or undertake community development" (World Bank Operational Directive 14.70). NGOs are
quite similar to the not-for-profit organizations. They are primarily mission-focused rather than
profit-focused. NGOs fall into three main categories: community-based, national, and
international.
,2-1 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
Chapter 2
PLANNING
FOR
SUCCESS:
BUDGETING
QUESTIONS FOR DISCUSSION
2-1. Planning helps the organization by causing its employees to think ahead and anticipate change.
This is done by establishing specific goals and objectives, communicating those objectives to the
individuals who must achieve them, forecasting future events, developing alternatives, selecting
from among alternatives, and coordinating activities. The activities are summarized in a
document called a budget. The budget describes what we hope to achieve and the resources that
will be used to carry out the organization’s activities.
2-2. The organization’s mission represents its reason for existence. For public, health, and not-for-
profit organizations, finances often become a means to an end, rather than the end itself. This
mission cannot solely be making profits. Financial management must help balance the focus on
profit with the public service elements of the organization’s mission.
2-3. Strategic plans translate the mission of the organization into an approach or set of approaches
that will be used to accomplish the mission, and a broad set of goals that need to be attained to
achieve the mission. Strategic plans set the organization’s long-term direction. They often do not
have specific financial targets. However, they set the stage for the specific, detailed budgets that
will be established to achieve the organization’s goals.
2-4. Whereas the strategic plan establishes goals, the long-range plan considers how to achieve those
goals. Long-range plans establish the major activities that will have to be carried out in the
coming three to five years. This process links the strategic plan to the day-to-day activities of the
organization. Organizations that do not prepare a long-range plan are often condemned to only
sustain current activities, at best.
2-5. Budgets establish the amount of resources that are available for specific activities. However,
budgets do not merely limit the resources that can be spent. They represent the detailed plan that
supports the organization’s efforts to achieve its mission, and help the organization determine
and achieve its goals and objectives. The budgeting process is one of exploring possibilities.
Organizations determine what things they can and cannot do. They examine alternatives and
choose those that are likely to yield the best results. They become attuned to possible problems
and can work to find solutions. Budgeting forces managers to think ahead, to have clear
expectations against which to measure performance, and to coordinate the activities of the
organization so that everyone is working toward a common purpose.
Budgets are also used to control results. That is, budgets not only create plans, but they are
also used to help accomplish those plans. This is done by comparing actual results to the budget.
Looking at results, we can assess what needs to be corrected. How good a job did the
,Chapter 2: Planning for Success: Budgeting 2-2
organization’s management do? How well did the organization itself do? In order to evaluate
performance, one must have a standard or benchmark to compare with actual results. The budget
establishes the organization’s expectations.
2-6. An organization may consider undertaking an activity that was not planned for when the annual
budget was prepared. At any time an organization can prepare a special budget for a specific
purpose. Appropriate approval should be obtained before implementing the budget.
2-7. An organization’s budgets are often organized into a strategic plan, long-range plan, master
budget, and special purpose budgets.
2-8. When an individual is only responsible for a small pience of the budget, that person may be
unwilling to compromise on issues that might benefit the organization overall. As a result,
different individuals might know the organization’s goal, but be unwilling to make adjustments
to their own area to achieve these goals.
2-9. Budgets present specific, measurable goals. An individual is much more likely to work
efficiently if there is a target to shoot for, assuming that the target is not unrealistic.
2-10. Most employees would prefer salaries that are substantially larger than the amounts they are
currently receiving. Organizations lack the revenues to pay for those raises. Most managers
would like more office space with new furniture and remodeled facilities. They would certainly
like more staff to carry out existing functions. Organizations must make choices concerning how
to spend their limited resources.
2-11. Depending on the specific organization, the volume of services provided may have plunged or
soared. This would have resulted in substantially more or less revenues than expected. If
revenues plunged, then we would have had more staff than needed, without the resources to pay
that staff. We may have found ourselves unexpectly unable to pay rent on our facilities. Even if
revenues were up, we may have been faced with soaring costs for items in short supply. A
budget is a very important tool. However, we should never assume that it tells us exactly what
will happen. Managers need to be flexible, observe events that may cause actual events to differ
from the budget, and be prepared to act quickly to take mitigating actions.
2-12. It is very tempting for a manager to see significant variations from the budget, and want to revise
the budget. Generally once a budget has been approved by the governing body of the
organization we do not go back and revise the official budget, even if we see significant
variations from the budget. However, as a manager starts to see that something has happened
which will make results very different from budgeted expectations, the manager has to act to
minimize the negative impacts of the changes on the organization. For example, if you manage a
museum, and the number of customers to your museum café has plunged, you have to make
adjustments to staffing and food purchases to minimize the losses that you will incur. If
revenues are insufficient to pay rent, you have to negotiate with your landlord for a moratorium
on rent payments. If you see that there is no way you can cover even severely reduced costs
given your drop in customer volume, you need to quickly gear up fund-raising activities to bring
in more donations to offset losses in sales. The budget is still a valuable tool, because by
,2-3 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
comparing your original expectations to the actuality you can determine things such as how
much additional donations you will need to keep the organization afloat.
2-13. The manager should make sure that it is in the staff’s best interests to do the things that are in the
organization’s best interests. The key is to establish a means of making the normally divergent
desires of the organization and its employees become convergent, or congruent. Organizations
often achieve congruence by setting up a system of incentives.
2-14. Financial incentives include retaining one’s job and receiving good raises and bonuses. Bonus
systems have a variety of problems. Some bonus systems reward all employees if spending is
reduced. This is good unless workers can restrict volume, thus reducing the number of units of
service provided in order to save money. Such behavior would likely reduce revenues by a
greater amount than it would save costs. Also, if everyone gets a bonus, then no one feels that
individual actions have much impact, and each individual may feel that she or he does not have
to work particularly hard to reap the benefits of the bonus. If bonuses are given only to some
employees, it may create jealousy and discontent. It is also possible that it may create a
competitive environment in a situation in which teamwork is needed to provide quality care.
There are incentive alternatives to bonuses; for example, a letter from supervisor to subordinate.
In the real world, praise is both cheap and, in many cases, effective. On the other hand, criticism,
especially in writing, can have a stinging effect that managers will work hard to avoid in the
future.
2-15. If targets are placed out of reach, people probably will not stretch to their utmost limits to come
as close to the target as possible. When people work extremely hard and then fail, they often
question why they bothered to work so hard. If hard work results in failure to achieve the target,
then why not ease off? If you are going to fail anyway, must it be so painful?
2-16. (1) The budget is first prepared. (2) After review by the body with adoption authority, it is
adopted, either with or without changes. (3) Once approved, the budget is implemented. It is the
responsibility of the management of the organization or the executive branch of the government
to assure that the adopted budget is carried out. (4) Finally, the results must be evaluated.
Accountability is an element of this evaluation.
2-17. In some organizations, support and revenues are only acknowledged if they have been received
in cash. In those cases, expenses are recognized when they have been paid. For organizations that
record their revenues and expenses in that way, the cash budget would be identical to the
operating budget. They are said to use a cash basis of accounting. In contrast, if revenue is
recorded in the year the service is provided, whether cash has been received yet or not, then the
organization is said to be using an accrual basis of accounting.
Cash accounting is easier, but does it enable us to understand how well our organization is
doing? With accrual accounting we accrue, or anticipate, the eventual receipt of money for
services provided, as well as recording expenses for resources consumed, even if they have not
yet been paid for. When accrual accounting is used, the operating budget gives us a good idea of
how profitable we expect the organization to be. However, it does not give an accurate idea of
how much cash we will have.
,Chapter 2: Planning for Success: Budgeting 2-4
2-18. Modified cash is a system that treats most revenues and expenses on a cash basis. However,
capital acquisitions are depreciated over time, rather than all being treated as an expense in the
year cash is paid for them.
2-19. The budget process can be quite complicated and time consuming. The process may take one to
three months in small organizations and four to six months or even longer in larger ones. In order
to assure that the budget is ready for adoption sufficiently early to be implemented at the start of
the coming year, many organizations prepare a budget calendar or timeline. Government
timelines are often set by law or regulation.
PROBLEMS – SEE EXCEL FILES FOR OTHER PROBLEM SOLUTIONS
2-21. 4
3
, 2-5 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 8E
2-22. January 31, 2020 Market Close S&P 500 Index value: 3327.71
(Note the market close value on Jan. 31 is the value at the start of the day on February 1.
August 31, 2021 Market Close S&P 500 Index value: 4522.68
Change in S&P 500: 4522.68 – 3327.71 = 1194.97
Percent Change: 1194..71 x 100 = 35.9%
Endowment Start: $100 million
Endowment Change: $100 million = 35.9% = $35.9 million
Endowment End: $135.9 million.
Clearly, organizations with significant endowments were in a position to sell some of the gains
on their endowment over the course of the pandemic to help them survive even if their revenues
were dropping significantly.
While many organizations use the interest and dividends earned on their endowment to help
them provide marginally more services each year, an endowment also serves a vital safety
function for the organization, providing a potential alternative source of resources to help the
organization survive hard times.
2-23
1. Earns
Uses
2. depreciation
3. cash or cash flows; or the full project life
