In this presentation, we will comparegovernmental accounting versus not-for-profit accounting. First questionyou might have is, aren't they the same thing, because oftentimes we see thesethings grouped together. If we see a course in governmental accounting wetypically see governmental accounting & not-for-profit accounting groupedtogether. The answer is that it depends. When we think about thegovernmental and not-for-profit accounting and we compare them to the grouping of thefor-profit accounting that's just going to be one format that we can group informationtogether in. It's just like grouping anything else together. It's the samekind of ideas grouping something like a .
Cat to something like a tiger. We mightsay, well if they're both in the category of cats but if we wanted to study one orthe other or group them into one course of study? We would probably want toseparate the two because there's enough distinction between them at this pointin time that we would want to focus in on them individually. At one point intime they were probably much the same and we could study them together withoutany type of problem. The same is going to be true with different formats anddifferent specializations within business. Within accounting at one pointin time all of accounting was basically covered by the double-entry accountingsystem. As time passes then .
More specialization happens such asgovernmental accounting breaking off and basically being a subfield that we haveto think about separately because there's enough difference to do so andthen we have the governmental and not-for-profit which at this point intime has a lot of information so we probably want to break those two out andthink of them separately that I want to point that out here, for a few differentreasons. One, of course, is just so that we have them distinct in our mind so weknow what these groupings mean and how we want to approach them and study them.Two we want to know what we're thinking about when we want to understand acertain concept so in other words, if .
You're here for something like anot-for-profit and you run something like a small not-for-profit type oforganization, then you might be overwhelmed if you start thinking aboutand comparing to governmental accounting which is going to use fund accounting. Wemay not need fund accounting although some of the not-for-profit type conceptsmight apply to other smaller nonprofit types of organizations. If on the otherhand, we're studying accounting for some formalized studies such as a CPA examthen we typically end up grouping not for profits and Gov. together andconcentrate a lot of our time on the governmental accounting because that'soften the one that's going to have the .
Most regulations and oftentimes mostcomplexities including things like fund accounting. If we're a smallnot-for-profit organizations than many times we can think about some of theconcepts and the objectives of the accounting being similar but oftentimesmany of the concepts such as fund accounting may not be applicable to thenot-for-profit organizations and it might be a little bit overwhelming toconsider all the rules for governmental accounting when we're thinking about anot-for-profit accounting. We'll take a look at that in a bit more detailshortly. First, we want to look at how thesethings are going to be similar, why we .
Have grouped them together, the not-for-profits and governmental accounting. One way we can think aboutthese groupings and subgroups of accounting is to consider governmentalaccounting compared to a for-profit accounting. In other words, if we thinkabout accounting fields in general and how they have developed the accountingdouble-entry accounting system would be applied to all types of organizationsand that at some point in time, as things grow, as more regulations happen, we breakout and consider, because of different objectives, the government andnot-for-profits breaking out separately from the for-profit. So we have thefor-profits now being substantially .
Distinct than the not-for-profit to thepoint where we consider them to be different areas. We're going to considerthem two different fields of study to some degree. Obviously, there's a lot ofoverlap and then there's going to be some differences given the changes thathave taken place. What then is the root cause or the key component that definesthe changes between a for-profit organization and accounting for it andthe government and not-for-profit? It basically stems from this concept, thefor-profit organization the owners which we would think of as stockholders ifit's a corporation expect a return on investment proportional to resourcesprovided. In other words, if we're the .
Owner of an organization we're puttingour time and our money into that organization and we expect to get a direct return on what we have put into that organization and therefore weare going to be regulating, we're going to be making sure that we measurethe performance of the organization to see that we are getting a return. Thatmeans that the stock holders of the organization are reallythe primary people that check whether or not that organization is achieving theirobjectives because they expect to have that market pressure, that market returnon the investment that they have put into the organization. Both governmentand not-for-profit organizations are .
Financed by providers who do not expectbenefits proportional to the resources they provide. In other words, if wethink about a government type of organization, they're gonna get resourcesin terms of tax dollars in order to pay for necessary things but the peoplepaying in the tax dollars aren't looking for a direct return. They're notexpecting a direct return in the same type of way that you'll have that directreturn with a for-profit type of organization. Therefore the oversight isa little bit more difficult to see because the people that are putting themoney in are not regulating in the same way that you would think that wouldhappen for a for-profit organization .
Because you don't have that directreturn type of relationship. The same thing happens with a charitableorganization. We put money into a charitable organization, say for medicalresources or care of someway or a church or something like that, they take thoseresources and use it towards some type of goal. However, that goal isn't a directreturn to the people that are giving the money into the organization andtherefore the oversight that the people would typically have in a for-profitorganization. In other words, in a for-profit organization we're going tomonitor very closely the performance, how management is doing because we expectthat direct return. When we don't expect .
That direct return there's lessmonitoring. When we donate to a charity we may not spend as much of our timedetermining whether or not there's a return that's not going directly to usbut to other people and therefore the accounting for the organization needs tobe in some ways more transparent. It's actually more difficult in some waysbecause we don't have that market pressure that we would have in thefor-profit organization. The other way we can group the government andnot-for-profit organizations together and compare and contrast to afor-profit organization is through the tax code. We can basically say, well thefor-profit organization is going to be .
Subject to taxation. The profits aregoing to be subject to tax. The government andnot-for-profit organization than are often exempt from taxes so that's gonnabe another way that we can define government and not-for-profit beinggrouped together as opposed to for-profit. The for-profit being subjectto taxes, not-for-profit oftentimes not being subject to taxes. Obviously ifwe're thinking about something like the government they're not going to taxthemselves. It would be kind of redundant to tax themselves. We tax otherorganizations. The tax is the revenue to the government. That's not going to besomething that they typically pay if .
They're going to be the receiver so that'sone way we can consider, one way we can define a not-for-profit organization,something like a charity, is to simply say that they qualify for tax exemptionin some way. In some way they're not going to be paying the tax in the same wayas a for-profit type of organization because they qualify under the tax codefor some type of exemption. That's another way that we can define and groupand not-for-profit and governmental together as compared to thefor-profit organization. Now let's take a look at some of the regulations as wecompare them to our three basic categories that we have we've got. We havefor-profit organizations, we have the .
Not-for-profit organizations, and we havethe governmental types of organizations and this is going to be the types ofregulations that we have. We have the FAB which is the Financial AccountingStandards Board. Note that for profits are going to besubject to FASB. Government is subject to FASB as well as not-for-profit andyou can think of this as being similar to the way accounting isbasically growing up, how it has evolved in essence, it being applied to all typesof organizations, that's where the basic accounting principles start, then theregulation happens with FASB as it applies it to standard accounting concerned with for-profit .
Types of organizations but also applyingdouble-entry accounting to governmental and not-for-profit, and then as thingsevolved so do the regulations. Then we have GASB governmentalaccounting standards and this is going to be where we can think of the evolutionhappening and we say, okay, we've realized that there's some areas that the FASBis normal accounting has different concepts that are necessary.Therefore different regulations that are necessary, GASB. then is going to bean added type of regulation to fill in those places where the FASB isn't adequate for governmental accounting. Then we have the FASABwhich is the federal Accounting .
Standards Advisory Board and itapplies to the federal government and its agencies and departments. You cansee here that even if we compare the not-for-profit to the governmental typeof organizations the governmental type of organizations have a lot moreregulations that we have to comply with and therefore as these things grow wewant to probably break out the not-for-profit and think of them evenseparately as the governmental type of organizations given the fact that we'regoing to have a lot more to deal with as the governmental organizations applythese different types of regulations. One of the major differencesbetween the not-for-profit organization .
And governmental organisations is thatit's less likely that the not-for-profit organization will have to apply fullfund accounting although they might have other things that they must do to trackthings differently than a for-profit type of organization. The governmentalAccounting is more likely to use full fund accounting which is going to be asystem that can be a bit complex