Accounting for Governmental & Nonprofit Organizations, 2e

by Patton, Patton, Waymire

| ISBN: 978-1-61853-421-7 | Copyright 2022

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Welcome to the second edition of Accounting for Governmental and Nonprofit Organizations.


With extensive experience in teaching, setting accounting standards, and auditing financial statements, we know that accounting standards have become increasingly complex in an increasingly complex world. Therefore, we wrote this text on governmental and nonprofit financial accounting and reporting with one key objective: to make it easy to read and understand. To accomplish this objective, we followed this general approach: discuss the accounting principle, show the journal entry, provide an illustration.

We attempt to cover the basic accounting and financial reporting principles in as comprehensive a manner as possible. To keep the text practical and “real world, we enhanced the discussion of the principles with numerous illustrations drawn from financial reports prepared by actual governments and nonprofit organizations. We cover the latest accounting standards issued by the standards-setting bodies. Finally, we designed the end-of-chapter questions, exercises, problems, and cases specifically to help students better understand the material covered in our text.

In the second edition, we embrace the power of technology in the learning process. This product is not so much a textbook as it is an integrated learning system. Although the print textbook can be used on its own, we created extensive digital resources that integrate with and complement the print book. The emphasis in our approach is to provide students with a review problem for each deliberately selected, key learning objective. In this way, students see the application of concepts through a step-by-step illustration and then have the opportunity to immediately practice similar assignments electronically in myBusinessCourse (MBC), our online homework platform. In addition, MBC contains many instructional videos that were created by the authors. The combination of textbook, videos, and online practice comprise an active learning system that recognizes and embraces how todays students prefer to learn and provides students with the tools to master governmental and nonprofit accounting.

Target Audience

This text is written for college students (both accounting and public administration majors) and for practitioners. The breadth of the material covered in the text is designed to meet the needs of diverse users. The 17 chapters comprehensively cover financial accounting and reporting standards applicable to governmental and nonprofit organizations, auditing standards required in the audits of these organizations, and unique accounting issues faced by health care entities and colleges and universities. Those who have not had a course in basic accounting or who need a brief refresher can start with Chapter 17 (Fundamentals of Accounting) and draw selectively on the governmental, nonprofit, health care, education, and auditing chapters. Because of its flexibility, this text can be used by all of the following:

  1. Accounting majors who wish to learn the fundamentals of governmental and nonprofit accounting in either a full semester or less than a full semester undergraduate or graduate course
  2. Public administration majors who have had no previous accounting training but who need a basic understanding of general, governmental, nonprofit, health care, and college and university accounting; financial reporting; and financial statement analysis
  3. Persons employed by governments and nonprofit organizations, including the federal government, health care entities, colleges and universities, and voluntary health and welfare organizations
  4. Persons preparing for the Uniform Certified Public Accountant (CPA) examination, Certified Government Financial Manager (CGFM) examination, and civil service examinations
  5. Persons who wish, on their own, to learn about the financial accounting and reporting practices of governments and nonprofit organizations


Flexible Structure

This text allows an instructor to tailor the course to meet his or her course objectives. An instructor has flexibility in choosing both the topics that are covered and the amount of time devoted to a particular topic.

  • Instructors of students with little or no accounting background should begin with Chapter 17, which provides a practice-oriented approach to learning basic accounting concepts.
  • Chapters 1 through 10 focus on applying state and local governmental accounting and financial reporting principles.
  • Chapter 11 allows students to use financial statements, financial ratios, and information obtained from the Internet to analyze a governmentfinancial health. This should be of particular interest to instructors of public administration students as well as governmental accounting students that wish to learn how to use financial statements.
  • Chapter 12 provides an overview of federal government accounting and financial reporting.
  • Chapter 13 shifts to nonprofit organizations and provides the foundation of financial accounting and reporting for these entities.
  • Chapters 14 and 15 cover accounting and financial reporting for health care organizations and colleges and universities, respectively. This coverage aligns with the state and local government accounting and financial reporting chapters (for governmental hospitals and public colleges and universities) and with the nonprofit chapter (for nonprofit hospitals and private, nonprofit colleges and universities).
  • Chapter 16 focuses on auditing governmental and nonprofit organizations, viewing financial reporting and compliance through the lens of the auditor, as opposed to the preparer.
This textbook has more material than typically can be covered in a semester. The following table provides a possible approach to a governmental and nonprofit accounting course of varying lengths. This approach should provide students with a sufficient understanding of state and local government and nonprofit accounting and financial reporting to prepare for the CPA exam. Instructors may wish to reduce or eliminate the discussion of a number of chapters depending on their desired emphasis. Some instructors either eliminate or have reduced discussion of Chapter 8. Instructors may choose to only discuss Chapter 14 or Chapter 15 as both chapters apply financial reporting standards to a particular industry. Finally, some instructors wish to discuss the auditing topics in Chapter 16, and others do not as they may discuss such topics in a separate auditing course.














Road Maps

Every chapter opens with a grid that identifies each learning objective for the chapter, the related pages, eLecture and Guided Example videos, and end-of-chapter assignments. This allows students and faculty to quickly grasp the chapter contents and to efficiently navigate to the desired topic.


Real-World Situations Illustrate the Application of Theory

To prepare for the practice of accounting, auditing, and financial management, students must be able to visualize the application of accounting theory to real-world situations. Therefore, we use illustrations based on financial statements issued by actual governments and nonprofit organizations. For example,


To enliven the text, we include a special feature that we call Governmental (or Nonprofit) Accounting in Practice, Federal Financial Reporting in Practice, and Auditing in Practice. For example, our detailed discussion of the financial status of Social Security helps illustrate the extensive amount of detail provided in the annual financial report prepared by the United States government; and our discussion of the procedures used by Charity Navigator to assess the financial performance of nonprofit entities helps illustrate the nature of the data provided in nonprofit financial statements.


We include data analytics problems in the auditing chapter. These problems provide students with the opportunity to discover the issues with audit quality in the government and nonprofit sectors, as well as the timing lag from fiscal year-end to filing of the audit report. Using real data from the Federal Audit Clearinghouse, students explore these issues in Excel using descriptive statistics and trending techniques.

User-Friendly Discussion of Modified Accrual Basis

Governmental accounting is generally taught after students have learned the theory of accrual accounting and the journal entries needed to record accrual-related transactions and events. Because of this, some students have difficulty grasping both the concepts underlying the modified accrual basis/current financial resources measurement focus used in governmental-type funds and the accounting and financial reporting implications. Therefore, Chapter 2 and Chapter 4 introduce the topic, and Chapter 5 reinforces and expands upon the earlier discussion.

Chapter 5 contains extensive discussion of why modified accrual accounting is used, the basic principles of modified accrual accounting, and—in a Governmental Accounting in Practice illustration—a discussion of how financial statements prepared using modified accrual accounting can mislead the unwary reader because modified accrual does not always measure the economic substance of transactions and events. We believe our frank coverage of the subject—and the classroom discussion it should foster—will help the student better understand it. Chapter 5 also includes detailed discussion of the accounting entries needed to record transactions and events under modified accrual accounting, and a comprehensive end-of-chapter illustration that covers the entire accounting and financial reporting cycle, including many exercises and problems.

Text Includes New Accounting Standards

Keeping an accounting text up-to-date can be challenging because accounting standards-setters are invariably working on new standards while the text is being written. This edition takes account of standards issued by the Governmental Accounting Standards Board (GASB), Financial Accounting Standards Board (FASB), and Federal Accounting Standards Advisory Board (FASAB) through June 30, 2020 and even refers to statements in progress while the text was being written. In particular, a discussion of GASB proposed changes to the governmental fund reporting model is found beginning on page 5-33.

Coverage of Other Types of Entities

Although most of this text (Chapters 2 through 10) is devoted to state and local government accounting, we provide extensive coverage of the unique aspects of accounting and financial reporting for the federal government and nonprofit entities. In Chapter 12 (federal government), we cite specific references to the governments Standard General Ledger. Exploring the citations included in this chapter will give students greater insight into federal government finances; our Federal Financial Reporting in Practice provides an accounting perspective on the growth of the federal deficit.


We provide extensive coverage of nonprofit organizations (Chapter 13), as well as entities which can take the form of governments or nonprofits in our coverage of health care entities (Chapter 14) and colleges and universities (Chapter 15). These chapters provide illustrations using real examples of governmental and nonprofit organizations. Standards applicable to nonprofit organizations are up-to-date in the textbook discussion and illustrations, including FASB ASU 2018-08 which clarifies accounting for contributions received and contributions made.

Chapter 16 is comprehensive in its coverage of auditing the wide range of governmental and nonprofit organizations covered throughout the text. Illustrations in this chapter also use real examples of audit reports and findings.

Actual Financial Statements Analyzed

number of state and local governments have recently experienced fiscal stress as evidenced by bankruptcy filings and underfunded pension plans. The authors believe that accounting students need to be familiar not only with the requirements of financial reporting but also how to interpret the financial statements and related notes. Therefore, our chapter on financial statement analysis (Chapter 11) includes a discussion of the principles of financial statement analysis, and is supplemented with our own analysis of a real government. As a basis for analyzing the financial position of a government, we used “indicators” and “norms” developed by private rating and public oversight agencies. Our objective here is to provide the inquisitive student with sufficient data to “do it yourself.”


Comprehensive Governmental Accounting Problem

This text has a comprehensive governmental accounting problem in Appendix A for instructors who like to reinforce the discussion of accounting principles with a problem that considers concepts learned in multiple chapters. This problem includes assignments for four governmental funds and an enterprise fund. Assignments incorporate what students have learned in Chapters 3, 4, 5, 6, 7, 9 and 10 into one problem—going from budgetary accounting to the preparation of governmental fund, enterprise fund, and government-wide financial statements.


Reviews for Each Learning Objective

Governmental and nonprofit accounting can be difficult for students who have been exposed only to commercial accounting. To help students comprehend the governmental and nonprofit accounting concepts, a guided example is included with each learning objective. The guided examples allow students to do an exercise that reinforces the accounting concept or application discussed in that section. Answers for the guided examples are provided at the end of each chapter. In addition, the authors explain the thought process used to solve the guided examples in a video available on Cambridge Business Publishers’ online homework platform, myBusinessCourse. 



New to This Edition

The second edition has been updated, expanded, and improved based on the comments from users of the first edition of the textbook and feedback from reviewers and workshop participants. Some of the more significant changes include:

  • New New discussion of nonprofit regulatory issues, including a discussion of Form 990, in Chapter 13.
  • A new chapter (Chapter 15) on accounting for colleges and universities. Similar to the existing chapter on health care organizations, we discuss governmental entities (public colleges and universities) and nonprofits (private colleges and universities).
  • A new chapter (Chapter 16) on auditing governmental and nonprofit organizations, including the application of Generally Accepted Government Auditing Standards (GAGAS) and Uniform Guidance.
  • A discussion of the GASBs proposed change to governmental funds and governmental fund reporting in Chapter 5.
  • Comprehensive Governmental Accounting Problem in Appendix A.
  • Considerably more multiple-choice questions in the assignments.
  • Updated and new examples, illustrations, and real financial statements.
  • Significantly expanded MBC content, including new assignments and updated videos.
  • Significantly expanded Test Bank.



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Expand/Collapse All
About the Authors (pg. iii)
Preface (pg. iv)
Brief Contents (pg. xiii)
Contents (pg. xiv)
Chapter 1 Governmental and Nonprofit Accounting Environment and Characteristics (pg. 1-1)
Governmental and Nonprofit Organizations (pg. 1-3)
The Operating Environment (pg. 1-4)
Organizational Purposes (pg. 1-4)
Sources of Revenue and Relationship with Stakeholders (pg. 1-4)
Potential for Longevity (pg. 1-5)
Role of the Budget and Legal Requirements (pg. 1-5)
Review 1-1 (pg. 1-6)
Users and Uses of Accounting Information (pg. 1-6)
Objectives of Financial Reporting (pg. 1-7)
State and Local Government Financial Reporting (pg. 1-7)
Federal Government Financial Reporting (pg. 1-7)
Nonprofit Organization Financial Reporting (pg. 1-8)
Distinctive Accounting and Financial Reporting Characteristics (pg. 1-8)
Use of Fund Accounting (pg. 1-8)
Incorporation of Budgets into Accounting Systems (pg. 1-9)
Measurement Focus and Basis of Accounting (pg. 1-9)
Entity Wide and Fund-Level Reporting (pg. 1-9)
Financial Reporting of Restricted Resources (pg. 1-10)
Review 1-2 (pg. 1-10)
Accounting Principles and Standards (pg. 1-10)
Establishing Generally Accepted Accounting Principles (pg. 1-10)
Hierarchy of Generally Accepted Accounting Principles (pg. 1-11)
Review 1-3 (pg. 1-13)
Organization of This Textbook (pg. 1-13)
Questions (pg. 1-13)
Multiple Choice (pg. 1-14)
Exercises (pg. 1-15)
Solutions to Chapter 1 In-Chapter Review Questions (pg. 1-16)
Chapter 2 The Use of Funds in Governmental Accounting (pg. 2-1)
Fund Accounting-The Fund Categories (pg. 2-3)
Funds as Subdivisions of an Entity (pg. 2-3)
Why Governments Use Fund Accounting (pg. 2-4)
Fund Categories (pg. 2-5)
Financial Reporting with the Use of Funds (pg. 2-6)
Measurement Focus and Basis of Accounting (pg. 2-7)
Review 2-1 (pg. 2-9)
Governmental-Type Funds (pg. 2-9)
Measurement Focus, Basis of Accounting, and Financial Reporting (pg. 2-10)
General Fund (pg. 2-11)
Special Revenue Funds (pg. 2-15)
Capital Projects Funds (pg. 2-16)
Debt Service Funds (pg. 2-17)
Permanent Funds (pg. 2-18)
Review 2-2 (pg. 2-18)
Proprietary Type Funds (pg. 2-19)
Enterprise Funds (pg. 2-19)
Internal Service Funds (pg. 2-19)
Reporting on Proprietary Type Funds (pg. 2-20)
Review 2-3 (pg. 2-23)
Fiduciary Type Funds (pg. 2-23)
Pension (and Other Employee Benefit) Trust Funds (pg. 2-24)
Investment Trust Funds (pg. 2-24)
Private-Purpose Trust Funds (pg. 2-25)
Custodial Funds (pg. 2-25)
Reporting on Fiduciary Type Funds (pg. 2-25)
Review 2-4 (pg. 2-27)
Questions (pg. 2-27)
Multiple Choice (pg. 2-27)
Exercises (pg. 2-30)
Problems (pg. 2-32)
Chapter 2 Case Study (pg. 2-35)
Solutions to Chapter 2 In-Chapter Review Questions (pg. 2-35)
Chapter 3 Budgetary Considerations in Governmental Accounting (pg. 3-1)
Balanced Budget Laws (pg. 3-3)
Budgetary Types and Approaches (pg. 3-4)
General Fund and Special Revenue Fund Budgets (pg. 3-5)
Capital Budgets and Plans (pg. 3-5)
Budgetary Approaches (pg. 3-5)
The Budget Process-Enactment Phase (pg. 3-6)
Illustrations of Budget Documents (pg. 3-7)
Service Efforts and Accomplishments (pg. 3-8)
Review 3-1 (pg. 3-9)
Financing the Budget (pg. 3-9)
Raising Revenues (pg. 3-9)
Preparing Cash Forecasts to Determine Temporary Borrowing Needs (pg. 3-10)
Review 3-2 (pg. 3-11)
The Budget Process-Execution Phase (pg. 3-11)
Review 3-3 (pg. 3-13)
Classifying Revenues and Expenditures (pg. 3-13)
Revenue Classification (pg. 3-13)
Expenditure Classification (pg. 3-15)
Review 3-4 (pg. 3-16)
Budgetary Accounting (pg. 3-16)
Recording the Adopted Budget (pg. 3-16)
Recording Budgetary Interchanges and Other Revisions (pg. 3-17)
Review 3-5 (pg. 3-18)
Recording Encumbrances (pg. 3-19)
Recording Differences between Purchase Order and Invoice (pg. 3-20)
Review 3-6 (pg. 3-21)
Allotment Systems (pg. 3-21)
Detailed Illustration (pg. 3-21)
Review 3-7 (pg. 3-26)
Questions (pg. 3-26)
Multiple Choice (pg. 3-26)
Exercises (pg. 3-28)
Problems (pg. 3-31)
Chapter 3 Case Study-Central Falls Bankruptcy (pg. 3-33)
Solutions to Chapter 3 In-Chapter Review Questions (pg. 3-35)
Chapter 4 An Introduction to General and Special Revenue Funds (pg. 4-1)
Background (pg. 4-3)
The General Fund (pg. 4-3)
Special Revenue Funds (pg. 4-4)
Revenue and Expenditure Recognition (pg. 4-5)
Review 4-1 (pg. 4-5)
Short-Term Financing and Investing (pg. 4-6)
Review 4-2 (pg. 4-6)
Basic Entries in General and Special Revenue Funds (pg. 4-7)
The Scenario and the Budgets (pg. 4-7)
Transactions and Events and Resulting Journal Entries (pg. 4-8)
Review 4-3 (pg. 4-13)
Fund Financial Statements (pg. 4-14)
Review 4-4 (pg. 4-16)
Closing the Accounts (pg. 4-16)
Review 4-5 (pg. 4-17)
Control Accounts and Subsidiary Ledgers (pg. 4-17)
Concluding Comments (pg. 4-18)
Questions (pg. 4-19)
Multiple Choice (pg. 4-19)
Exercises (pg. 4-22)
Problems (pg. 4-24)
Solutions to Chapter 4 In-Chapter Review Questions (pg. 4-28)
Chapter 5 General and Special Revenue Funds (Continued) (pg. 5-1)
Recognition and Measurement-General Principles (pg. 5-3)
Review 5-1 (pg. 5-5)
Property Tax Revenues and Receivables (pg. 5-6)
Basic Principles and Journal Entries (pg. 5-6)
Year-End Adjustments (pg. 5-7)
Summary Results, Prior Year Tax Levy, and Subsequent Year Transactions (pg. 5-8)
Tax Discounts (pg. 5-9)
Interest on Delinquent Taxes and Tax Liens (pg. 5-9)
Review 5-2 (pg. 5-10)
Sales Tax and Personal Income Tax Revenues and Receivables (pg. 5-11)
Intergovernmental Grants and Other Revenues (pg. 5-13)
Intergovernmental Grants (pg. 5-13)
Fines, Fees, Licenses, and Miscellaneous Revenues (pg. 5-15)
Payments in Lieu of Taxes (pg. 5-15)
Review 5-3 (pg. 5-15)
Expenditures and Fund Liabilities (pg. 5-16)
Recognizing Expenditures and Liabilities in Governmental Funds (pg. 5-16)
Applying Expenditure Recognition Standards to Specific Transactions and Events (pg. 5-17)
Review 5-4 (pg. 5-20)
Interfund Transactions (pg. 5-20)
Interfund Services Provided and Used (pg. 5-20)
Interfund Transfers (pg. 5-21)
Interfund Loans (pg. 5-22)
Interfund Reimbursements (pg. 5-23)
Review 5-5 (pg. 5-24)
Other Accounting Matters (pg. 5-24)
Acquiring and Disposing of Capital Assets (pg. 5-24)
Inventories and Prepayments (pg. 5-25)
Warrants (pg. 5-27)
Review 5-6 (pg. 5-27)
Year-End Financial Statements (pg. 5-27)
Statement of Revenues, Expenditures, and Changes in Fund Balance (pg. 5-27)
Balance Sheet (pg. 5-28)
Review 5-7 (pg. 5-28)
Classifications of Fund Balance in the Balance Sheet (pg. 5-29)
Effect of Year-End Encumbrances on Fund Balance Classification (pg. 5-31)
Review 5-8 (pg. 5-32)
GASB Proposed Changes (pg. 5-33)
Proposed Governmental Fund Changes (pg. 5-33)
Proposed MD&A Changes (pg. 5-34)
Proposed Budgetary Comparison Information Changes (pg. 5-36)
Implementation Dates (pg. 5-36)
Comprehensive Problem on the General Fund (pg. 5-36)
The Problem (pg. 5-36)
The Solution to the Problem (pg. 5-39)
Closing Journal Entries (pg. 5-46)
Questions (pg. 5-47)
Multiple Choice (pg. 5-47)
Exercises (pg. 5-50)
Problems (pg. 5-53)
Solutions to Chapter 5 In-Chapter Review Questions (pg. 5-56)
Chapter 6 Capital Projects Funds, Debt Service Funds, and Permanent Funds (pg. 6-1)
Measurement Focus and Basis of Accounting (pg. 6-3)
Capital Projects Funds (pg. 6-3)
Overview (pg. 6-3)
Capital Budgets (pg. 6-4)
Summary of Fund Activities (pg. 6-5)
Control of Fund Activities (pg. 6-5)
Accounting for Fund Activities (pg. 6-5)
Financial Statements Illustration (pg. 6-10)
Completing the Project: The Following Year (pg. 6-10)
Review 6-1 (pg. 6-13)
Issuance of Bonds at a Premium or Discount (pg. 6-13)
Issuance of Bonds between Interest Payment Dates (pg. 6-14)
Arbitrage (pg. 6-14)
Review 6-2 (pg. 6-16)
Debt Service Funds (pg. 6-16)
Overview (pg. 6-16)
Types of Government Debt (pg. 6-17)
Review 6-3 (pg. 6-18)
Summary of Fund Activities (pg. 6-19)
Control of Fund Activities (pg. 6-19)
Accounting for Fund Activities (pg. 6-19)
Financial Statements Illustration (pg. 6-23)
Review 6-4 (pg. 6-25)
Leased Assets (pg. 6-26)
Overview (pg. 6-26)
Accounting for Leases in Governmental Funds (pg. 6-26)
Review 6-5 (pg. 6-27)
Permanent Funds (pg. 6-27)
Control of Fund Activities (pg. 6-28)
Accounting for Fund Activities (pg. 6-28)
Concluding Comment (pg. 6-30)
Review 6-6 (pg. 6-30)
Questions (pg. 6-31)
Multiple Choice (pg. 6-31)
Exercises (pg. 6-34)
Problems (pg. 6-36)
Chapter 6 Case Study-Having Faith in “Full Faith and Credit” Debt (pg. 6-41)
Solutions to Chapter 6 In-Chapter Review Questions (pg. 6-42)
Chapter 7 Proprietary Type Funds-Enterprise and Internal Service Funds (pg. 7-1)
Proprietary Funds Are Governments’ Business-Type Activities (pg. 7-3)
Overview (pg. 7-3)
Measurement Focus and Basis of Accounting of Proprietary Funds (pg. 7-3)
What Determines Whether a Proprietary Fund Is an Enterprise Fund or an Internal Service Fund? (pg. 7-4)
Control of Proprietary Fund Activities (pg. 7-4)
GAAP for Proprietary Funds (pg. 7-4)
Review 7-1 (pg. 7-6)
Specific Aspects of Internal Service Funds (pg. 7-6)
Overview (pg. 7-6)
Control of Internal Service Fund Activities (pg. 7-7)
Accounting for Internal Service Fund Activities (pg. 7-7)
Reporting Internal Service Funds-Financial Statements Illustration (pg. 7-10)
Reporting Internal Service Funds in Combined Financial Statements (pg. 7-12)
Review 7-2 (pg. 7-14)
Specific Aspects of Enterprise Funds (pg. 7-15)
Control of Enterprise Fund Activities (pg. 7-15)
Accounting for Enterprise Fund Activities (pg. 7-15)
Financial Statements Illustration (pg. 7-19)
GASB GAAP Compared to FASB GAAP (pg. 7-26)
Why Should GAAP Be Different? (pg. 7-26)
Reporting Capital Assets and Their Use (pg. 7-27)
Accounting for Leases (pg. 7-27)
Capital Asset Impairment (pg. 7-29)
Pensions and Other Postemployment Benefits (pg. 7-29)
Including Fiduciary Activities (pg. 7-30)
Reporting Changes in Net Position versus Comprehensive Income (pg. 7-30)
Concluding Comments (pg. 7-31)
Review 7-4 (pg. 7-31)
Questions (pg. 7-31)
Multiple Choice (pg. 7-32)
Exercises (pg. 7-34)
Problems (pg. 7-37)
Solutions to Chapter 7 In-Chapter Review Questions (pg. 7-41)
Chapter 8 Fiduciary Funds (pg. 8-1)
Overview of Employer Government Pension and OPEB Accounting (pg. 8-3)
Defined Benefit and Defined Contribution Plans (pg. 8-3)
Pension and OPEB Plans (pg. 8-4)
Structure of Plans (pg. 8-5)
The Role of Actuaries (pg. 8-5)
External and Internal Defined Benefit Plans (pg. 8-6)
Computing the Pension and OPEB Liability for Defined Benefit Plans (pg. 8-6)
Computing Pension and OPEB Expense and Related Deferrals (pg. 8-9)
Computing the Employer Pension and OPEB Liability for Defined Contributions (pg. 8-12)
Determining the Pension and OPEB Contribution (pg. 8-13)
Pension and OPEB Note Disclosures (pg. 8-13)
Review 8-1 (pg. 8-13)
Pension Trust Funds (pg. 8-14)
Pension Trust Fund Operating Entries (pg. 8-14)
Closing Entry (pg. 8-17)
Financial Statements Illustration (pg. 8-18)
Financial Reporting for Defined Contribution Plans (pg. 8-18)
Review 8-2 (pg. 8-23)
Investment Trust Funds (pg. 8-23)
Fund Overview (pg. 8-23)
Summary of Investment Trust Fund Activities (pg. 8-24)
Control of Fund Activities (pg. 8-24)
Accounting for Investment Trust Fund Activities (pg. 8-24)
Financial Statements Illustration (pg. 8-27)
Private-Purpose Trust Funds (pg. 8-29)
Fund Overview (pg. 8-29)
Summary of Private-Purpose Trust Fund Activities (pg. 8-29)
Accounting for Private-Purpose Trust Fund Activities (pg. 8-29)
Financial Statements Illustration (pg. 8-30)
Review 8-3 (pg. 8-33)
Custodial Funds (pg. 8-33)
Fund Overview (pg. 8-33)
Accounting for Custodial Fund Activities (pg. 8-34)
Financial Statements Illustration (pg. 8-35)
Review 8-4 (pg. 8-37)
Questions (pg. 8-37)
Multiple Choice (pg. 8-38)
Exercises (pg. 8-41)
Problems (pg. 8-42)
Solutions to Chapter 8 In-Chapter Review Questions (pg. 8-45)
Chapter 9 Reporting Principles and Preparation of Fund Financial Statements (pg. 9-1)
Overview of Financial Reporting (pg. 9-3)
Financial Reporting Objectives and GASB Statement No. 34 (pg. 9-3)
Content of the CAFR-an Overview (pg. 9-5)
Minimum External Financial Reporting Requirements (pg. 9-7)
Review 9-1 (pg. 9-7)
The Financial Reporting Entity (pg. 9-8)
Defining the Financial Reporting Entity (pg. 9-8)
Reporting Component Units in the Reporting Entity’s Financial Statements (pg. 9-11)
Related Organizations, Joint Ventures, Jointly Governed Organizations (pg. 9-12)
Review 9-2 (pg. 9-13)
Preparing Management’s Discussion and Analysis (pg. 9-14)
Review 9-3 (pg. 9-16)
Preparing Fund Financial Statements (pg. 9-16)
General Comments (pg. 9-16)
Fund Financial Statements-Governmental Funds (pg. 9-18)
Fund Financial Statements-Proprietary Funds (pg. 9-23)
Fund Financial Statements-Fiduciary Funds (pg. 9-24)
Review 9-4 (pg. 9-25)
Preparing Notes to the Financial Statements (pg. 9-25)
Significant Accounting Policies (pg. 9-26)
Stewardship, Compliance, and Accountability (pg. 9-26)
Deposits and Investments (pg. 9-26)
Capital Assets and Long-Term Debt (pg. 9-28)
Interfund Transfers and Balances (pg. 9-28)
Pensions and Other Postemployment Benefits (OPEB) (pg. 9-29)
Review 9-5 (pg. 9-29)
Preparing Required Supplementary Information (pg. 9-30)
Budgetary Comparison Schedules (pg. 9-30)
Pension and Other Employee Benefit Information (pg. 9-32)
Infrastructure Asset Information (pg. 9-33)
Review 9-6 (pg. 9-34)
Preparing the Statistical Section (pg. 9-34)
Financial Trends (pg. 9-35)
Revenue Capacity (pg. 9-35)
Debt Capacity (pg. 9-35)
Demographic and Economic Information (pg. 9-35)
Operating Data (pg. 9-35)
Review 9-7 (pg. 9-36)
Questions (pg. 9-36)
Multiple Choice (pg. 9-37)
Exercises (pg. 9-40)
Problems (pg. 9-43)
Chapter 9 Case Studies (pg. 9-44)
Solutions to Chapter 9 In-Chapter Review Questions (pg. 9-46)
Chapter 10 Government-Wide Financial Statements (pg. 10-1)
Fund Financial Statements are the Starting Point for Government-Wide Statements (pg. 10-3)
Focus and Format of Government-Wide Statements (pg. 10-3)
The Government-Wide Statement of Net Position (pg. 10-4)
The Government-Wide Statement of Activities (pg. 10-8)
Review 10-1 (pg. 10-12)
Interfund and Internal Service Fund Balances and Activity (pg. 10-12)
Interfund Receivables and Payables (pg. 10-12)
Review 10-2 (pg. 10-14)
Preparing Government-Wide Financial Statements-Overview (pg. 10-14)
Process for Preparing Government-Wide Statements (pg. 10-14)
Discussion of Adjustments for Government-Wide Statements (pg. 10-15)
Review 10-3 (pg. 10-16)
Review 10-4 (pg. 10-18)
Review 10-5 (pg. 10-20)
Creating Government-Wide Financial Statements from Fund Financial Data: Comprehensive Illustration (pg. 10-20)
Opening Balances, Transactions, and Events (pg. 10-20)
Journal Entries to Record Transactions in Funds (pg. 10-21)
Preclosing Trial Balances and Fund Financial Statements (pg. 10-23)
Adjustments for Preparing Government-Wide Statements (pg. 10-24)
Preparing Government-Wide Financial Statements and Reconciliations (pg. 10-27)
Review 10-6 (pg. 10-31)
Capital Assets, Including Infrastructure Assets (pg. 10-31)
Reporting on Infrastructure Assets (pg. 10-32)
Capital Asset Accounting (pg. 10-33)
Review 10-7 (pg. 10-35)
Questions (pg. 10-35)
Multiple Choice (pg. 10-35)
Exercises (pg. 10-38)
Problems (pg. 10-41)
Solutions to Chapter 10 In-Chapter Review Questions (pg. 10-44)
Chapter 11 Analysis of Financial Statements and Financial Condition (pg. 11-1)
Financial Reporting: A Financial Analysis Perspective (pg. 11-3)
Statement of Net Position (pg. 11-3)
Statement of Revenues, Expenditures/Expenses, and Changes in Fund Balance/Net Position (pg. 11-4)
Notes to Statements, Required Supplementary Information, MD&A, and Statistical Data (pg. 11-4)
An Approach to Financial Statement and Financial Condition Analysis (pg. 11-5)
Converting Data to More Useful Formats (pg. 11-5)
Time-Series Analysis (pg. 11-6)
Comparative Analysis (pg. 11-6)
Review 11-1 (pg. 11-7)
Analyzing Governmental Financial Statements (pg. 11-7)
Liquidity Indicators (pg. 11-8)
Review 11-2 (pg. 11-10)
Asset Turnover or Efficiency Indicators (pg. 11-11)
Review 11-3 (pg. 11-12)
Budget Solvency and Operating Results Indicators (pg. 11-12)
Review 11-4 (pg. 11-16)
Debt Burden and Employee Benefit Obligation Indicators (pg. 11-16)
Review 11-5 (pg. 11-25)
Governmental Financial Condition Assessment (pg. 11-25)
Economic and Demographic Environment (pg. 11-26)
Other Factors Affecting Financial Condition Assessment (pg. 11-28)
Review 11-6 (pg. 11-29)
Questions (pg. 11-29)
Multiple Choice (pg. 11-30)
Exercises (pg. 11-31)
Problems (pg. 11-34)
Solutions to Chapter 11 In-Chapter Review Questions (pg. 11-38)
Chapter 12 Federal Government Accounting and Reporting (pg. 12-1)
Federal Government Accounting and Reporting Overview (pg. 12-3)
The Accounting and Financial Reporting Structure (pg. 12-3)
The Budget Process (pg. 12-4)
Review 12-1 (pg. 12-6)
Consolidated U.S. Government Financial Statements (pg. 12-6)
GAAP, Basis of Accounting, and Fund Structure (pg. 12-6)
Financial Statements-Year Ended September 30, 2019 (pg. 12-8)
Review 12-2 (pg. 12-12)
The Federal Accounting and Financial Reporting Model (pg. 12-12)
The Budgetary Accounting Track (pg. 12-13)
The Proprietary Accounting Track (pg. 12-15)
Accounting Standards (pg. 12-15)
Review 12-3 (pg. 12-18)
Recording Transactions and Events (pg. 12-18)
1. Recording the Authority to Spend (pg. 12-18)
2. Accounting for Acquisition and Use of Materials (pg. 12-19)
3. Accounting for Salaries Paid and Accrued (pg. 12-21)
4. Accounting for Other Types of Expenses (pg. 12-22)
5. Year-End Adjusting Entries (pg. 12-23)
6. Trial Balance and Closing Entries (pg. 12-23)
Review 12-4 (pg. 12-25)
Federal Agency Financial Reporting (pg. 12-25)
Review 12-5 (pg. 12-30)
Questions (pg. 12-30)
Multiple Choice (pg. 12-31)
Exercises (pg. 12-32)
Problems (pg. 12-34)
Solutions to Chapter 12 In-Chapter Review Questions (pg. 12-36)
Chapter 13 Accounting for Nonprofit Organizations (pg. 13-1)
Characteristics of Nonprofit Organizations (pg. 13-3)
Source of Accounting and Financial Reporting Guidance for Nonprofits (pg. 13-4)
Review 13-1 (pg. 13-4)
Financial Reporting for Nonprofits (pg. 13-4)
Objectives of Nonprofit Financial Reporting (pg. 13-4)
Reporting on Restrictions and Classes of Net Assets (pg. 13-5)
Statement of Financial Position or Balance Sheet (pg. 13-6)
Statement of Activities (pg. 13-8)
Statement of Cash Flows (pg. 13-12)
Reporting Expenses by Nature and Function-Statement of Functional Expenses (pg. 13-13)
Review 13-2 (pg. 13-13)
Contributions Other Than Services and Collections (pg. 13-14)
General Rule (pg. 13-14)
Unrestricted Contributions (pg. 13-14)
Contributions with Donor-Imposed Restrictions (pg. 13-14)
Accounting for Reclassifications (pg. 13-16)
Unconditional Promises to Give (Pledges) (pg. 13-17)
Conditional Promises to Give (pg. 13-18)
Review 13-3 (pg. 13-19)
Contributed Services and Collection Items (pg. 13-19)
Contributed Services (pg. 13-19)
Contributions to Collections (pg. 13-20)
Review 13-4 (pg. 13-22)
Investments and Split-Interest Agreements (pg. 13-22)
Fair Value Reporting and Investment Gains and Losses (pg. 13-22)
Investment Disclosures (pg. 13-24)
Investment Income (pg. 13-24)
Split-Interest Agreements (pg. 13-24)
Review 13-5 (pg. 13-25)
Reporting Exchange Revenues (pg. 13-25)
Exchange Transactions and Nonprofits (pg. 13-25)
Subscription and Membership Income (pg. 13-28)
Depreciation Expense (pg. 13-28)
Fundraising Expenses (pg. 13-28)
Providing Information about Nonprofit Liquidity (pg. 13-29)
Review 13-6 (pg. 13-30)
Nonprofit Regulatory Issues (pg. 13-30)
Nonprofit Existence, Organization, and Regulation (pg. 13-30)
Public Charities and Private Foundations (pg. 13-31)
Filing Requirements for IRC 501(c)(3) Organizations (pg. 13-31)
Review 13-7 (pg. 13-32)
Fund Accounting in Nonprofits (pg. 13-33)
Types of Funds (pg. 13-33)
Interfund Transfers (pg. 13-34)
Interfund Receivables and Payables (pg. 13-34)
Illustration Using Funds (pg. 13-34)
Review 13-8 (pg. 13-40)
Questions (pg. 13-41)
Multiple Choice (pg. 13-41)
Exercises (pg. 13-43)
Problems (pg. 13-46)
Solutions to Chapter 13 In-Chapter Review Questions (pg. 13-52)
Chapter 14 Accounting for Health Care Organizations (pg. 14-1)
Introduction (pg. 14-2)
Health Care Service Providers (pg. 14-3)
Sources of Generally Accepted Accounting Principles (pg. 14-4)
Financial Reporting Framework (pg. 14-4)
Review 14-1 (pg. 14-6)
Patient Service Revenues (pg. 14-6)
Nature of Hospital Payment Systems (pg. 14-6)
New Recognition Requirements (pg. 14-6)
Accounting for Patient Service Revenues (pg. 14-7)
Illustration (pg. 14-8)
Accounting for Capitation Premiums (pg. 14-10)
Notes to Financial Statements Regarding Revenue Recognition and Charity Care (pg. 14-11)
Review 14-2 (pg. 14-12)
Contributions, Gains, and Investment Income (pg. 14-12)
Contributions without Donor Restrictions and Contributed Supplies (pg. 14-12)
Contributed Services (pg. 14-13)
Donor-Restricted Contributions (pg. 14-13)
Contributions Received by a Nonprofit Hospital’s Foundation (pg. 14-14)
Governmental Hospital Foundations (pg. 14-15)
Transactions Creating Assets Limited as to Use (pg. 14-16)
Other Revenues, Gains, and Operating Support (pg. 14-16)
Investment Income (pg. 14-17)
Review 14-3 (pg. 14-18)
Operating Expenses and Medical Malpractice Claims (pg. 14-18)
Operating Expenses (pg. 14-18)
Medical Malpractice Claims (pg. 14-19)
Review 14-4 (pg. 14-20)
Hospital Financial Statements (pg. 14-20)
Balance Sheet (pg. 14-22)
Statements of Operations and Changes in Net Assets (pg. 14-26)
Statement of Cash Flows (pg. 14-29)
Review 14-5 (pg. 14-29)
Questions (pg. 14-29)
Multiple Choice (pg. 14-30)
Exercises (pg. 14-32)
Problems (pg. 14-34)
Solutions to Chapter 14 In-Chapter Review Questions (pg. 14-39)
Chapter 15 Accounting for Colleges and Universities (pg. 15-1)
Types of Colleges and Universities and GAAP Reporting (pg. 15-3)
Types of and Organizational Structures for Colleges and Universities (pg. 15-3)
Sources of Generally Accepted Accounting Principles (pg. 15-4)
Financial Reporting Framework (pg. 15-4)
Review 15-1 (pg. 15-6)
GAAP Revenue and Expense Recognition (pg. 15-6)
Nature of Operations and Similarities and Differences by Structure (pg. 15-6)
Accounting for Tuition and Fee Revenue (pg. 15-7)
Accounting for Auxiliary Services Revenue (pg. 15-8)
Accounting for State and Local Appropriations Revenue (pg. 15-9)
Accounting for Expenses (pg. 15-11)
Review 15-2 (pg. 15-11)
Accounting for Contribution Revenue, Grants, and Contracts (pg. 15-12)
Accounting for Contribution Revenue (pg. 15-12)
Grant Revenue (pg. 15-16)
Contract Revenue (pg. 15-17)
Review 15-3 (pg. 15-19)
Unique College and University Accounting Issues (pg. 15-19)
Student Financial Aid and Scholarships (pg. 15-20)
Agreements between Public Colleges or Universities and their Nonprofit Foundations (pg. 15-21)
Review 15-4 (pg. 15-24)
Financial Statements of Colleges and Universities (pg. 15-24)
Public College and University Financial Statements (pg. 15-24)
Private, Nonprofit College and University Financial Statements (pg. 15-30)
Review 15-5 (pg. 15-35)
Questions (pg. 15-35)
Multiple Choice (pg. 15-36)
Exercises (pg. 15-38)
Problems (pg. 15-40)
Solutions to Chapter 15 In-Chapter Review Questions (pg. 15-41)
Chapter 16 Auditing Governmental and Nonprofit Organizations (pg. 16-1)
Goals of Auditing Governmental and Nonprofit Entities (pg. 16-3)
Review 16-1 (pg. 16-5)
Understanding Generally Accepted Government Auditing Standards (pg. 16-5)
Requirements of AICPA GAAS in a Financial Statement Audit (pg. 16-5)
Applicability of GAGAS versus GAAS in Financial Statement Audits (pg. 16-5)
How GAGAS Have Evolved (pg. 16-6)
Requirements of GAGAS in a Financial Statement Audit (pg. 16-7)
GAGAS Audit Report (pg. 16-12)
Review 16-2 (pg. 16-15)
Other Types of Assurance and Attestation Engagements for Government and Nonprofit Entities (pg. 16-16)
Performance Audits (pg. 16-16)
Attestation Engagements (pg. 16-16)
Review 16-3 (pg. 16-17)
Uniform Guidance Audits (Commonly Referred to as Single Audits) (pg. 16-18)
Purpose of the Uniform Guidance Audit (pg. 16-18)
Key Developments of the Uniform Guidance Audit (pg. 16-18)
Requirements of a Uniform Guidance Audit (pg. 16-19)
Uniform Guidance Audits and Federal Audit Clearinghouse (FAC) Submissions (pg. 16-21)
Uniform Guidance Audit Findings (pg. 16-23)
Uniform Guidance Audit Quality (pg. 16-23)
Review 16-4 (pg. 16-24)
Special Topics Applied to Government and Nonprofit Auditing (pg. 16-24)
Rational Decision-Making and Cognitive Biases (pg. 16-24)
Special-Purpose Frameworks and the Conducting of an Audit (pg. 16-26)
Review 16-5 (pg. 16-28)
Questions (pg. 16-28)
Multiple Choice (pg. 16-29)
Exercises (pg. 16-31)
Problems (pg. 16-34)
Solutions to Chapter 16 In-Chapter Review Questions (pg. 16-35)
Chapter 17 Fundamentals of Accounting (pg. 17-1)
The Accounting Equation: Transaction Analysis (pg. 17-3)
Effect of Transactions and Events on the Accounting Equation (pg. 17-4)
Changes in Equity (pg. 17-4)
Review 17-1 (pg. 17-9)
The Accrual Basis of Accounting (pg. 17-9)
Accruals, Deferrals, and Amortizations (pg. 17-10)
Illustration (pg. 17-10)
Review 17-2 (pg. 17-11)
Recording Transactions: Debits and Credits (pg. 17-11)
Journals, Ledgers, and Accounts (pg. 17-11)
Double-Entry Accounting-Debits and Credits (pg. 17-12)
Debit and Credit Analysis (pg. 17-12)
A More Complete Look at the Transaction Recording Process (pg. 17-17)
The Ledger and Posting (pg. 17-18)
Review 17-3 (pg. 17-22)
Financial Statements (pg. 17-22)
The Accounting Cycle (pg. 17-22)
The Trial Balance (pg. 17-22)
Adjusting Entries (pg. 17-22)
Preparing Financial Statements (pg. 17-23)
Financial Statement Worksheet (pg. 17-24)
Review 17-4 (pg. 17-25)
Closing the Books (pg. 17-25)
Review 17-5 (pg. 17-27)
Other Transactions and Other Matters (pg. 17-27)
Withdrawals by the Owner (pg. 17-27)
Control and Subsidiary Accounts (pg. 17-27)
Credit Sales and Bad Debts (pg. 17-27)
Buying and Selling Merchandise (pg. 17-28)
Review 17-6 (pg. 17-29)
Questions (pg. 17-29)
Multiple Choice (pg. 17-30)
Exercises (pg. 17-31)
Problems (pg. 17-35)
Solutions to Chapter 17 In-Chapter Review Questions (pg. 17-38)
Appendix A Comprehensive Governmental Accounting Problem (pg. A-1)
Overview of Assignment (pg. A-1)
Croton City (pg. A-1)
Preparing Governmental Fund Journal Entries (pg. A-2)
Part A-General Fund Budgetary Journal Entries (pg. A-2)
Part B (1)-Chapter 5-Journal Entries for General Fund Transactions (pg. A-2)
Part B (2)-Chapter 5-Journal Entries for Special Revenue Fund Transactions (pg. A-3)
Part C (1)-Chapter 6-Journal Entries for Capital Projects Fund Transactions (pg. A-3)
Part C (2)-Chapter 6-Journal Entries for Debt Service Fund Transactions (pg. A-3)
Preparing Governmental Fund Financial Statements (pg. A-4)
Part D-Chapter 9-Prepare Fund Financial Statements and Schedule (pg. A-4)
Preclosing Trial Balances for Each Governmental Fund (pg. A-4)
Preparing Governmental Activities Portion of Government-Wide Financial Statements (pg. A-5)
Part E-Chapter 10-Prepare Journal Entries for Government-Wide Financial Statements and Prepare Gover (pg. A-5)
Part F-Chapter 7-Journal Entries for Enterprise Fund Transactions for Croton City (pg. A-6)
Preparing Enterprise Fund Financial Statements and Government-Wide Financial Statements (Optional) (pg. A-6)
Part G-Chapters 7 and 10-Prepare Enterprise Fund Financial Statements and Government-Wide Financial (pg. A-6)
Part G (1) Prepare Fund Financial Statements (pg. A-7)
Preclosing Trial Balance for Swimming Pool Enterprise Fund (pg. A-7)
Part G (2) Prepare Government-Wide Financial Statements (pg. A-7)
Index (pg. I-1)
Terry Patton

Terry Patton

Robert Madera Distinguished Professor of Accounting and Chair of the Accounting, Management Information Systems, and Legal Studies Department of the Dillard College of Business Administration at Midwestern State University in Wichita Falls, Texas

He received his bachelor’s degree from Midwestern State University, a master’s degree from the University of North Texas, and a PhD from Texas Tech University. He teaches governmental and nonprofit accounting, as well as auditing. 

Dr. Patton began his career in public accounting, where he audited local governments. Later, he served as a project manager and as the research manager for the Governmental Accounting Standards Board. He has coauthored a governmental accounting book for practitioners, Guide to Governmental Financial Reporting Model: Implementing GASBS No. 34, and another governmental accounting textbook published by Pearson Prentice Hall.

He has published articles in the Accounting Review, Accounting Horizons, the Journal of Accounting and Public Policy, and the Journal of Public Budgeting, Accounting, and Financial Management, among others. Dr. Patton regularly speaks to accounting professionals on state and local governmental accounting topics.

Dr. Patton has served as a board member on numerous nonprofit boards of directors. Currently, he serves on the board of the BBB Serving North Central Texas. He is also a board member and chair of United Regional Healthcare System and the Wichita Falls Alliance for Arts and Culture. 


Suesan Patton

Suesan Patton

National Director of Quality Initiatives for UHY LLP. Mrs. Patton also currently serves as a member of the Association of Government Accountants Financial Management Standards Board.

Most of Mrs. Patton’s career has been spent in standards-setting, beginning as a Manager with the American Institute of CPAs Accounting Standards Division and continuing with a 15-year stint with the Governmental Accounting Standards Board as a Senior Project Manager. She received a Bachelor of Arts degree in English Literature with a Concentration in Accounting from the University of Cincinnati. For several years, she was the principal author of two PPC Thomson practitioner guides on governmental accounting and financial reporting—Preparing Governmental Financial Statements under GASBS No. 34 and Governmental Financial Statement Illustrations and Trends.


Tammy Waymire

Tammy Waymire

Tammy R. Waymire, PhD, CPA, is the MTSU Accounting Advisory Board Outstanding Professor of Accounting at the Jennings A. Jones College of Business at Middle Tennessee State University in Murfreesboro, TN. She teaches undergraduate and graduate governmental and nonprofit accounting courses and intermediate accounting. She received her bachelor’s degree from Arkansas Tech University, her MBA from Harding University, and her PhD from the University of Arkansas.

Dr. Waymires professional experiences, prior to pursuing a PhD, include auditing governmental and nonprofit entities, investigating and testifying in Medicaid fraud cases, and analyzing public utility rates and testifying in ratemaking proceedings.

Dr. Waymire serves on the editorial boards of Journal of Governmental and Nonprofit Accounting, Issues in Accounting Education, and Journal of Accounting Education. Her research has been published in the Journal of Governmental and Nonprofit Accounting; Journal of Public Budgeting, Accounting and Financial Management; Issues in Accounting Education; Public Budgeting & Finance; Nonprofit Management and Leadership; Journal of Emerging Technologies in Accounting; Journal of Government Financial Management; Journal of Accounting Education; and Journal of Public Affairs Education; among others.

Dr. Waymire has served in leadership roles in academic organizations, participates in standard-setting activities, and routinely speaks at academic and professional conferences. At MTSU and at Northern Illinois University where she began her academic career, Dr. Waymire has earned awards for excellence in teaching and research.


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