Introduction to Governmental and Not-for-Profit Accounting by IVES,Johnson, Razek, Hosch - Book Report/Review Example

The main objective of a typical business is to earn a profit. Financial statements that zero in on net income are in sync with the target because net income is a measure of how well a business achieved its goals. Businesses also flex their financial muscles to promote the welfare of their employees, executives, shareholders and the community. However, business accounting and reporting are concerned almost exclusively with the goal of maximizing profits or cash flows. The financial reports of governments and not-for-profits also show inflows (revenues) and outflows (expenditures) of cash and resources. An excess of expenditures over revenues show financial distress and poor performance. However, an excess of revenues over expenditures is not necessarily the ultimate goal. To report properly on their outputs and outcomes, governments and not-for-profits must augment their financial statements with nonfinancial data relating to pertaining to their larger mission. E.g.: A school might include statistics on student test scores or graduation rates. A centre for the senile might present data on the number of people fed or adequately housed. Thus it entails reflection of both financial and social returns on investment. The following points succinctly elucidate the disparities further:- Budget is the governing parameter for the Government and Non-profit organizations rather than the marketplace. Expenditures drive revenues, i.e. first level of services and accompanying costs are determined to decide the taxes and allied revenues. Budgets are entrenched by legal prowess at the hands of the government. Governments are required by law and Non-profits by policy to maintain their inter period-equity. Revenues do not indicate level of demand and supply of service. No direct link between revenues and expenses. E.g. Donations to a not-for-profit may increase from one year to the next without a corresponding increase in the quantity, quality and cost of its service. Unlike businesses, governments and not-for-profits make invest heavily in public assets that neither produce revenues nor reduce expenditures. In contrast to business resources, many government and not-for-profit assets are restricted only for particular purposes. E.g. if the central government gives a state government a monetary grant for low-income housing, the resource can be used only in that effect, no matter how rewarding other purposes may be. No proper ownership interest is there i.e. if a government or non-profit entity is dissolved no stockholders can claim the residuals. As already discussed for governments and not-for-profits, profit is not a true indicator for either external parties or internal departments. The relevant performance measures must pertain to organization’s goals and are less likely to be same for the entire user group. On top of everything, the diversity and the sheer number of governments and not-for-profits (the independent sector like hospitals, schools, civic, social and fraternal organizations) make it difficult to have a common accounting model (set of accounting and reporting principles) that is suitable across the board. In addition to differing from businesses, the governments and n ...Show more