Chapter 15, Problem 1Q

To determine

Identify the financial statement that should be prepared by a private college or university and public college or university.

Explanation of Solution

As per FASB (Financial Accounting Standard Board) the private colleges and universities are required to prepare statement of financial position (balance sheet), statement of cash flows, and statement of activities. These statements are similar with the financial statements prepared by the business organizations.

Moreover, they have greater flexibility like business organizations for the preparation of financial statements. Thus, the private universities and colleges can prepare either multi or single-step statements of activities and can prepare statement of cash flows using direct or indirect method.

In case of public colleges and universities, GASB (Governmental Accounting Standard Board) standards state that such institutions has to prepare balance sheet or statement of net position, statement of revenues, expenses, and changes in net position, and statement of cash flows.

GASB does not permit an option of flexibility for public colleges and universities with respect to the preparation of financial statements. For Example: As per the standards, these institutions are required to report operating and non-operating activities separately under the statement of revenues, expenses, and changes in net position. Therefore, the public universities has to report the statement of cash flows using direct method.