Chapter 2

ACC410

Chapter 1

Questions for review:

2. Governments and not-for profits are governed by the budget, and not by the marketplace as businesses are. The budget is the key political and fiscal document. It determines how an entity obtains it’s resources and how it allocates those resources.

3. Owing to the significance of the budget, constituents want assurance that the entity achieves its revenue estimates and complies with its spending mandates. They expect the financial statements to report on how the budget was administered.

4. Interperiod equilty is a government's obligation to disclose whether current-year revenues were sufficient to pay for current-year benefits, or did current citizens defer payments to future taxpayers, i.e. it refers to whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided.

9. Many governments budget on a cash or near-cash basis. However, the cash basis of accounting does not provide adequate information with which to assess interperiod equity. Financial statements that satisfy the objective of reporting on interperiod equity may not satisfy that of reporting on budgetary compliance. Moreover, statements that report on either interperiod equity or budgetary compliance are unlikely to provide sufficient information with which to assess service efforts and accomplishments

11. The FASB influences generally accepted accounting principles of governments in two key ways. First, FASB pronouncements are included in the GASB “hierarchy” of GAAP. FASB pronouncements that the GASB has specifically made applicable to governments are included in the highest category; those that the GASB has not specifically adopted are included in the lowest category. Second, the business-type activities of governments are required to follow the business accounting principles as set forth by the FASB

Problem 1-1...