Question

describe the primary characteristics for governmental and not-for-profit entities. How does this differ from the primary characteristics for business organizations? In your discussion, explain how budgetary accounting contributes to achieving budgetary control over revenues and expenditures for governmental entities and not-for-profit entities.

Answer 1

Sol: The following characteristics that distinguished governmental and not-for-profit entities from business entities are:

(1)Receipts of significant amounts of resources from resource providers who do not expect to receive either repayment or economic benefits proportionate to the resources provided.

2) Operating purposes that are other than to provide goods or services at a profit or profit equivalent.

(3) Absence of defined ownership interests that can be sold, transferred, or redeemed or that convey entitlement to a share of a residual distribution of resources in the event of liquidation of the organization.

Non profit organizations are responsible for paying taxes based on their net income, nonprofit organizations are exempt from paying income tax. Since a nonprofit's goal is to make the world a better place and invest time, resources, and funds into the community.While nonprofits are not required to pay taxes on net income, they are responsible for state and property taxes.While the aim of business organizations is to maximize profits and forward these profits to the company's owners and shareholders.

  Governments and not-for-profits are governed mainly by their budgets, not by the marketplace. Revenues and expenditures are controlled through the budgetary process. The government’s revenues may be determined by legislature, so they aren’t subject to competition like in for-profit. Not-for-profit revenues aren’t established by legal mandate, but are obtained from contributions, dues, tuition, or user charges, unlike the sales of a business. Government and not-for-profit budgets are very important because they are the culmination of the political process and contains most of the organization’s important decisions. The budget determines which constituents give to the entity and which receive, which activities are supported and which are assessed. Constituents want assurance that spending has not exceeded authorized amounts and that revenues and expenditure estimates were reliable. The budget is used as a control device and complements the accounting and reporting system.