Chapter 19, Problem 1UTI

To determine

Introduction: The different approaches are used by public or non-profit organization for financial reporting as per generally accepted accounting principles.

To define: The measurement focuses and accounting basis for non-profit or governmental organization and the benefits for suing such ways of financial reporting.

Explanation of Solution

The following are the two measurement focuses used by public or non-profit organization:

Flow of current financial resources:

In this type of measurement focus, organization takes only cash or cash equivalents into account. This measurement focus helps an organization to assess that whether the cash or cash equivalent are enough for the claims made against the funds during the particular accounting period.

Flow of economic financial resources:

This is another type of measurement focus which focuses on all the assets that an organization owns. It considers all the assets and liabilities during the particular accounting period.

Basis of accounting:

There are two ways on the basis of accounting can be done. Firstly, on accrual basis and secondly on modified accrual basis of accounting.

As per first accounting basis, the revenues and expenses are recorded when they are earned and incurred respectively whereas under modified accrual basis of accounting, the revenue and expenses are recoded when they become measurable.

The importance of such accounting basis helps an organization to report its financial information to all its beneficiaries. The other benefits of measurement focuses and accounting basis are as follows:

• It ensures operational efficiency.
• Compliance with accounting rules and laws.
• Accurate financial information.
• Proper maintenance of assets.