term debt is not recorded as a liability.1-7.

Distinguish between private and public sector

organization.Private sector organizations are not owned or controlled by governments and include
businesses as well as private not-for-profit organizations. Public sector organizations are ownedand
controlled by governments.1-8. GASB considers budgetary accounting and reporting to be important.
List the principles outlined by GASB related to budgetary accounting and reporting.1. An annual budget
should be adopted by every governmental unit.2. The accounting system should provide the basis for
appropriate budgetary control.3. Budget comparisons should be included in the financial statements
and schedules for governmental funds for which an annual budget has been adopted.1-9. Go to the
GASB website (). What is the mission of GASB?To establish and improve standards of state and local
governmental accounting and financial reporting that will result in useful information for users of
financial reports, and guide and educate the public, including issuers, auditors, and users of those
financial reports.1-10. For each of the items below, identify which fund would be used to account for the
item andprovide a justification for your answer.a. A city government issued general obligation bonds to
finance the construction of a new jail.Debt Service Fundb. 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.Agency Fundc. A county government expended $1 million to expand the water treatment
plant.Enterprise Fundd. A donor provided investments totaling $4 million to create an endowment, the
earnings of which will be used to provide scholarships.Private-Purpose Trust Funde. A donor provided
$50,000 to be used to purchase newpaper and magazine subscriptions for the public library. There is no
requirement that the original principal may not be spent.

Accounting and financial reporting for state and local government use, in different places,either the
economic resources measurement focus and accrual basis of accounting or thecurrent financial
resources measurement focus and the modified accrual basis ofaccounting. Discuss the differences in
measurement focus and basis of accounting related to(a) the conceptual differences, (b) differences in
revenue recognition, (c) differences inexpense/expenditure recognition, (d) differences in recognition of
fixed assets, and (e)differences in the recording of long-term debt.a. The economic resources
measurement focus measures all economic resources, includingfixed assets and long-term debtAccrual
basis of accounting is recognizing revenues when they are earned and recognizingexpenses when they
are incurred.Current financial resources measurements focus measures mainly financial
resourcesexcluding fixed assets and long-term debt.

Modified Accrual accounting is recognizing revenues when they are measurable and available tofinance
expenditures of the current period, and recognizing expenditures when goods andservices are
received.b. In Accrual basis accounting revenues are recognized when they are earned. ModifiedAccrual
is recognizing revenues when they are measurable and available to finance expendituresof the current
period.c. In Accrual basis accounting expenditures are recognized when incurred. Whereas
ModifiedAccrual is recognized when goods or services are received.d. Economic resources measurement
focus and accrual basis accounting fixed assets arecapitalized and depreciated. Whereas current
financial resources measurement focus andmodified accrual basis of accounting charge fixed assets to
expenditures.e. Long-term debt is recorded as a liability, and reductions are made when payments
arerecorded in the Economic resources measurement focus and accrual basis accounting. In
currentfinancial resources measurement focus and modified accrual basis of accounting long-term
debtis not recorded as a liab

1-3. Identify and briefly describe the three organizations that set standards for state and local
governments, the federal government, and nongovernmental not-for-profit organizations.

1. FASAB-(Federal Accounting Standards Advisory Board) Provides accounting and financial reporting
standards for the federal government.

2. GASB-(Governmental Accounting Standards Board) Provides accounting and financial reporting

standards for state and local governments.

3. FASB-(Financial Accounting Standards Board) Provides accounting and financial reporting standards
for for-profit businesses and nongovernmental not-for-profit organizations.1-4. What is the definition of
a government as agreed upon by the FASB and GASB?Public corporation and bodies corporate and
politic are governmental organizations. Organizations that have the power to enact and enforce a tax
levy; have potential for unilateral

dissolution by a government with the net assets reverting to a government; or popular election of
officers or appointment of a controlling majority of the members of the organization’s governing body
by officials of one or more state or local governments are considered a government.1-5. Describe the
“hierarchy of GAAP” for state and local governments, the federal government, and nongovernmental
not-for-profit organizations.FASAB, GASB, and FASB are the primary sources of GAAP, a basic set of rules
to be followed in all stages of accounting. FASAB, GASB and FASB standards are set forth primarily in the
Statements. Each statement will explain in further detail the application of the statement. For state and
local governments they follow GASB Statements. Federal government agencies followFASAB
Statements. Nongovernmental not-for-profit organizations follow FASB Statements. All three boards
publish organized versions of accounting standards.

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Describe the business-type activities of a state or local government and explain how and why accounting
and financial reporting for business-type activities differ from those for governmental activities
 Modified accrual basis accounting is used for all governmental funds (general, federal
special revenue, other special revenue, general debt service, debt service, and capital projects).
Under the cash basis, transactions are recognized only when cash changes hands. Modified
accrual accounting combines aspects of accrual basis accounting with cash basis accounting.
The purpose of this approach is to measure the flows of current financial resources in
governmental fund financial statements. The standards for modified accrual accounting are set
by the Government Accounting Standards Board (GASB). As the name implies, this approach is
primarily used by government entities. The accounting requirements of government entities are
considered to be sufficiently different from those of for-profit entities to require this different
approach.

The two main features of modified accrual accounting are:

 Revenues are recognized when they become available and measurable. Availability
arises when the revenue is available to finance current expenditures to be paid within 60 days.
Measurability occurs when the cash flow from the revenue can be reasonably estimated.

 Expenditures are recognized when liabilities are incurred. This is the same approach
used under the accrual basis of accounting, though inventory and prepaid items can be
recognized as expenditures when purchased, rather than first being capitalized as an asset. In
addition, depreciation expense is not recognized. Instead, assets are charged to expense when
purchased.

There are several naming conventions that distinguish modified accrual accounting from accrual
basis and cash basis accounting. For example, net income is instead called an excess or
deficiency, while expenses are instead referred to as expenditures.