Question

In: Accounting

Identify and explain the characteristics that distinguish governmental and not-for-profit entities from for-profit entities

Identify and explain the characteristics that distinguish governmental and not-for-profit entities from for-profit entities

Solutions

Expert Solution

The Financial Accounting Standards Board’s (FASB) lists down some characteristics that distinguishes a governmental and a not-for-profit entities from business organizations

  1. It receives significant amounts of resources from the providers of those resources, and they in turn do not expect to receive back economic benefits in proportionate to the resources provided.
  2. It operates with a purpose other than to earn profit.
  3. It lacks any defined ownership interests.

Other differences between a ‘governmental and a not-for-profit entities’ and ‘business organizations’ are:

  1. The mission and vision of the entity goes into determining the goods or services provided by it.
  2. There is an important need to generate revenues greater than or equal to expenditures/expenses incurred by it.
  3. The budget plays an important role in the governing process as it is the document through which all the plans are made and are implemented according to it.
  4. Governmental and not-for-profit entities exist to provide goods and services to their stakeholders, not to generate profits.

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