1. What characteristics distinguish nonbusiness organizations from profit-orient

Question

1. What characteristics distinguish nonbusiness organizations from profit-oriented enterprises?

2. Define a fund as the term is applied in accounting for the activities of governmental units and other nonbusiness organizations.

3. What is the significance of the “unreserved fund balance” of an expendable fund entity?

4. What are the major classifications of increases and decreases in expendable fund resources?

5. What are the revenue-recognition criteria for expendable fund entities? How do these criteria differ from revenue-recognition criteria for profit-oriented enterprises?

6. Expenditures may be classified by function, activity, object, or organizational unit. Give an example of each classification for a municipality. Which classification is the most appropriate for external financial reporting?

7. Distinguish between an appropriation, an encumbrance, an expenditure, and a disbursement.

8. Distinguish between an expense and an expenditure.

Explanation / Answer

8) Expense is reported on the income statement , it refers to the used up cost like rent expense , salaries whereas expenditure is wider term and involves expense as well, it refers to the payment . for example payment of liability is an expenditure but is not an expense since it is not reported in income statement

6)Muncipality

Function - Safety of Public

Activity-Vice control

Object-Travel

Organisational unit-Department of Police

For external financing reporting functional as well as activity are appropirate

7) Appropiration--Refers to the authorisation for specified purpose either by the legislative body or governement organisation.

Encumbrance - is an obligation in the form of purchase order that reduces appropiration authority

Expenditure - it is decrease in the net financial resources of the entity

Disbursement - is payment in cash of the expenditure.

1)Profit oriented business exists for earning profits whereas non - business organisation main objective is not profit earning ,they perform services from social point of view

Also their is no proprietary interest , they do not exist for the financial benefit of any sepcific individual or group.

2)fund is fiscal and self balancing set of accounts recording cash and other financial resources together with all related liabilities and residual equities or balances and changes therein

3)Unreserve fund balance represents the balances of financial resources which can be used for specified purpose only

4)Revenue , debt issue proceed s and transfer from other funds are increase ,.Decrease involves fund resources classified as expenditures or transfer to other funds

5)For expendable revenue is recognised when it can be measured , is available for expenditure of current period for profit oriented when it can be measured and the process is substantially complete

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