Accounting for Governmental & Nonprofit Entities, 18th edition by Reck, Lowensohn, and Neely, is a comprehensive resource for public sector accounting principles.
Overview of the Textbook
Accounting for Governmental & Nonprofit Entities, currently in its eighteenth edition, provides a detailed exploration of the unique financial reporting landscape for these organizations. The text meticulously covers accounting principles tailored to state and local governments, alongside the specific requirements for nonprofit entities.
It progresses logically, beginning with foundational concepts and advancing to complex topics like budgetary accounting, capital asset management, and the intricacies of fund accounting. The book features illustrative examples and practical applications, enhancing understanding of real-world scenarios.
Readers will gain proficiency in preparing financial statements compliant with Generally Accepted Accounting Principles (GAAP) for both governmental and nonprofit sectors.
Authors and Editions
Accounting for Governmental & Nonprofit Entities is authored by Jacqueline L. Reck, Ph.D;, CPA, a Distinguished Professor at the University of South Florida, Suzanne L. Lowensohn, Ph.D., CPA, CGMA, from the University of Vermont, and Daniel G. Neely, Ph.D., CPA, an Associate Professor at the University of Wisconsin-Milwaukee.
The textbook has undergone numerous revisions to stay current with evolving accounting standards. The current edition is the eighteenth, reflecting ongoing updates to GAAP and best practices. Walter A; Robbins served as a reviewer for the text, ensuring accuracy and clarity.
Target Audience
Accounting for Governmental & Nonprofit Entities is primarily designed for students pursuing coursework in governmental and nonprofit accounting at the undergraduate and graduate levels. The textbook caters to those seeking a strong foundation in the unique financial reporting requirements of these entities.
Professionals working within state and local governments, as well as nonprofit organizations, will also find this resource valuable for continuing education and staying abreast of current accounting standards. It’s suitable for both aspiring and practicing accountants.

Part One: State and Local Governments
Part One delves into the specific accounting principles and financial reporting standards governing state and local governmental entities, as detailed in the Reck PDF.
Principles of Accounting and Financial Reporting
This section, within the Reck PDF, establishes the foundational accounting and financial reporting principles unique to state and local governments. It contrasts these with those used in for-profit entities, highlighting the importance of accountability to taxpayers and stakeholders.
Key areas covered include the Governmental Accounting Standards Board (GASB) as the primary standard-setting body, and the differences between governmental, proprietary, and fiduciary fund types. Understanding these principles is crucial for accurately presenting a government’s financial position and results of operations, ensuring transparency and informed decision-making.
Generally Accepted Accounting Principles (GAAP) for State and Local Governments
The Reck PDF details how Governmental Accounting Standards Board (GASB) pronouncements establish GAAP for state and local governmental entities. These principles differ significantly from those governing for-profit organizations, emphasizing accountability and stewardship of public funds.
Key concepts include fund accounting, the modified accrual basis of accounting, and specific reporting requirements for various fund types. Adherence to GASB standards ensures consistency and comparability in financial reporting, allowing stakeholders to assess a government’s financial health and performance effectively.
Governmental Accounting Environment
As the Reck PDF illustrates, the governmental accounting environment is uniquely complex, shaped by political influences, public accountability, and diverse funding sources. Unlike for-profit entities, governments operate with a focus on service provision rather than profit maximization.
This context necessitates specialized accounting practices, including budgetary controls and fund accounting, to demonstrate responsible resource management. Understanding the regulatory framework, including GASB standards, is crucial for accurate financial reporting and informed decision-making within the public sector.

Governmental Operating Statement Accounts: Budgetary Accounting
The Reck PDF details how budgetary accounting is central to governmental financial management, focusing on legally adopted budgets and encumbrances.
The Budgetary Process
As outlined in the Reck PDF, the budgetary process in governmental accounting is a crucial element of financial control and accountability. It begins with executive proposals, followed by legislative review and appropriation.
This process culminates in a legally enacted budget, serving as the foundation for subsequent financial reporting. The budget integrates planned revenues and expenditures, establishing spending limits for various governmental activities.
Budgetary accounting emphasizes adherence to these legal appropriations, and encumbrances—commitments to expend funds—play a vital role in tracking available resources throughout the fiscal year.
Budgetary Fund Accounting
According to the Reck PDF, budgetary fund accounting is a specialized system used by governmental entities to demonstrate compliance with legal appropriations. It focuses on inflows and outflows of financial resources rather than traditional accrual accounting.
Budgetary funds, distinct from governmental or proprietary funds, track budgeted revenues and expenditures.
These funds often utilize the modified accrual basis of accounting, recognizing revenues when measurable and available, and expenditures when a liability is incurred and legally appropriated. This approach ensures transparency and accountability in public finance.
Basis of Accounting – Modified Accrual
As detailed in the Reck PDF, the modified accrual basis of accounting is a cornerstone of governmental fund accounting. Revenues are recognized when both measurable and available – meaning collectible within the current period or soon enough thereafter to be used to liquidate liabilities.
Expenditures, conversely, are generally recognized when a liability is incurred, provided sufficient budgetary appropriation exists.
This differs from the accrual basis, offering a balance between economic reality and practical constraints for public sector financial reporting.
Accounting for Governmental Operating Activities
The Reck PDF illustrates transactions related to core governmental functions, focusing on financial statement presentation and fund-level accounting practices.
Illustrative Transactions
The Reck PDF provides detailed examples demonstrating the application of modified accrual accounting within governmental entities. These transactions cover typical revenue sources like property taxes and intergovernmental aid, alongside common expenditures such as salaries, supplies, and contractual services.
Students will analyze journal entries and understand how these activities impact various governmental funds, particularly the General Fund. The text meticulously walks through each step, clarifying the accounting treatment for both routine and more complex scenarios. This practical approach reinforces comprehension of governmental accounting principles.
Financial Statement Presentation
The Reck PDF details the unique financial statement format for governmental entities, diverging from traditional commercial accounting. Key statements include the Governmental Funds Balance Sheet, Statement of Governmental Revenues, Expenditures, and Changes in Fund Balances, and the related notes.
Emphasis is placed on presenting budgetary comparisons, showcasing how actual results align with approved budgets. The text illustrates proper disclosure requirements, ensuring transparency and accountability. Students learn to interpret these statements, understanding the financial position and operating results of governmental organizations.
Fund Types – General Fund
As the Reck PDF explains, the General Fund is the primary operating fund of most governmental entities, accounting for all financial resources not required to be accounted for in another fund. It’s used to finance a broad range of governmental services, including public safety, education, and parks.
The text details how transactions are recorded within the General Fund using the modified accrual basis of accounting. Students learn to classify revenues and expenditures correctly, ensuring accurate financial reporting for this crucial fund type.

Accounting for General Capital Assets
The Reck PDF details accounting for long-lived assets like buildings and infrastructure, covering capitalization policies, depreciation methods, and proper financial statement presentation.
Capitalization Policies
As outlined in the Reck PDF, governmental entities must establish clear capitalization policies defining the minimum expenditure amount required to recognize an asset. This threshold varies by jurisdiction and entity size, impacting which purchases are treated as expenses versus capital outlays.
The textbook emphasizes the importance of consistently applying these policies to ensure comparability of financial statements over time. Factors considered include the asset’s useful life, intended use, and potential for future economic benefit. Proper documentation supporting capitalization decisions is crucial for audit purposes, aligning with GAAP standards for state and local governments.
Depreciation Methods
The Reck PDF details various depreciation methods applicable to governmental entities, including straight-line, declining balance, and units of production. While GAAP doesn’t mandate a specific method, consistency is paramount. The choice impacts the allocation of an asset’s cost over its useful life, affecting reported expenses.
The textbook highlights that infrastructure assets often present unique depreciation challenges. Component depreciation, recognizing individual parts separately, is discussed. Accurate depreciation calculations are vital for presenting a fair view of an entity’s financial position and operational results, adhering to established accounting principles.
Infrastructure Assets
As the Reck PDF explains, infrastructure assets – roads, bridges, buildings – pose unique accounting hurdles. These assets often have extended useful lives and substantial costs. The textbook emphasizes the importance of proper capitalization and depreciation, often utilizing component depreciation to reflect usage patterns.
Reporting requirements for infrastructure are complex, demanding detailed record-keeping. Retroactive application of new standards can be significant. The book provides guidance on complying with GASB standards, ensuring transparent financial reporting for these vital public resources and their long-term value.

Capital Projects Accounting
The Reck PDF details project fund accounting, construction in progress, and capital outlay funds, crucial for tracking significant, long-term governmental investments.
Project Fund Accounting
As outlined in the Reck PDF, project fund accounting focuses on specific capital projects financed by long-term debt or grants. These funds meticulously track resources dedicated to a particular project, ensuring accountability and transparency.
This method distinguishes between projects authorized for financing and those still in the planning stages. The Reck text emphasizes proper expenditure tracking, including costs directly attributable to the project’s completion.
Detailed records are maintained to demonstrate compliance with funding restrictions and provide a clear audit trail, vital for governmental financial reporting standards.
Construction in Progress
According to the Reck PDF, “Construction in Progress” (CIP) represents the accumulated costs of a capital project while it’s actively being built. This account meticulously captures expenditures like materials, labor, and contractor fees incurred before the asset is ready for its intended use.
The Reck text stresses that CIP is not depreciated until the asset is substantially complete and placed in service.
Properly classifying costs as CIP is crucial for accurate financial reporting, demonstrating responsible stewardship of public funds and adherence to governmental accounting standards.
Capital Outlay Funds
As detailed in the Reck PDF, Capital Outlay Funds are utilized to account for financial resources restricted for the acquisition of major capital assets. These funds demonstrate a government’s commitment to long-term infrastructure improvements.
The Reck textbook emphasizes that resources are typically earmarked for specific projects, like building a new library or road.
Expenditures from these funds increase the government’s investment in capital assets, enhancing public services and contributing to long-term economic development, adhering to GAAP principles.

Part Two: Nonprofit Organizations
The Reck PDF transitions to financial reporting specifically for not-for-profit entities, covering unique standards and classifications of net assets.
Financial Reporting for Not-for-Profit Entities
As detailed in the Reck PDF, financial reporting for nonprofits diverges significantly from governmental and for-profit models. Key components include the Statement of Financial Position – a snapshot of assets, liabilities, and net assets – and the Statement of Activities, which reports revenues, expenses, and changes in net assets over a period.
Understanding net asset classifications – unrestricted, temporarily restricted, and permanently restricted – is crucial. The text emphasizes revenue recognition principles, particularly concerning contributions and grants, and the distinction between conditional and unconditional promises to give, impacting when revenue is recognized.
Statement of Financial Position
According to the Reck PDF, the Statement of Financial Position for nonprofits, akin to a balance sheet, presents assets, liabilities, and net assets at a specific date. Assets are categorized as current or long-term, while liabilities follow the same distinction. However, the core difference lies in the ‘net assets’ section, reflecting the organization’s financial health.
This statement showcases how resources are classified based on donor restrictions, providing transparency to stakeholders. Proper presentation is vital for understanding the organization’s financial standing and fulfilling accountability requirements, as detailed within the textbook’s guidance.
Statement of Activities
As outlined in the Reck PDF, the Statement of Activities reports a nonprofit’s financial performance over a period, focusing on changes in net assets. It presents revenues, expenses, gains, and losses, categorized by unrestricted, temporarily restricted, and permanently restricted net assets. This categorization demonstrates how donor stipulations impact resource availability.
The statement illustrates the organization’s ability to fulfill its mission, providing a clear picture of its operational effectiveness. Understanding this statement is crucial for assessing financial sustainability and donor impact, as emphasized throughout the textbook’s detailed explanations.

Net Asset Classification
The Reck PDF details net asset classifications – unrestricted, temporarily restricted, and permanently restricted – dictating how nonprofits report donor-imposed limitations.
Unrestricted Net Assets
Accounting for Governmental & Nonprofit Entities (Reck PDF) clarifies that unrestricted net assets represent resources available for general use by the nonprofit organization. These funds aren’t subject to any explicit donor-imposed restrictions. They form the core operating budget and support the organization’s ongoing mission.
The textbook emphasizes proper accounting for these assets, ensuring transparency in financial reporting. Organizations can designate portions of unrestricted net assets for specific purposes, but these designations don’t legally restrict the funds. Understanding this classification is crucial for accurate financial statement presentation and demonstrating financial health to stakeholders.
Temporarily Restricted Net Assets
Accounting for Governmental & Nonprofit Entities (Reck PDF) details that temporarily restricted net assets are subject to donor-imposed stipulations that will be fulfilled by actions of the organization or the passage of time. These restrictions might include funds for a specific program, or contributions earmarked for future use.
The textbook stresses the importance of tracking these restrictions meticulously. When the restriction is met – say, a program is completed – the funds are reclassified as unrestricted. Proper accounting ensures accurate portrayal of net asset availability and donor intent.
Permanently Restricted Net Assets
Accounting for Governmental & Nonprofit Entities (Reck PDF) explains permanently restricted net assets represent resources with donor-imposed stipulations that never expire. Typically, these involve endowments where the principal must be maintained in perpetuity, with only the investment income available for use.
The textbook emphasizes careful accounting for these assets, distinguishing between the original gift and any subsequent earnings. Organizations must adhere to state laws governing endowments and clearly report these restrictions on their statement of financial position.

Contributions and Grants
Accounting for Governmental & Nonprofit Entities details revenue recognition, donor restrictions, and the crucial distinction between conditional and unconditional promises to receive funds.
Revenue Recognition
Accounting for Governmental & Nonprofit Entities thoroughly examines the complexities of revenue recognition for not-for-profit organizations. The text clarifies how to properly account for contributions, grants, and exchange transactions, emphasizing the importance of understanding donor restrictions. It details the criteria for recognizing revenue, including whether a promise is considered unconditional or conditional, directly impacting when revenue can be recorded.
Furthermore, the book explores the nuances of recognizing revenue from various sources, ensuring compliance with GAAP standards and providing practical guidance for accurate financial reporting within the nonprofit sector.
Donor Restrictions
Accounting for Governmental & Nonprofit Entities dedicates significant attention to donor-imposed restrictions, a crucial aspect of nonprofit accounting. The text meticulously explains how to classify contributions as temporarily or permanently restricted, based on explicit donor stipulations. Understanding these restrictions is vital for accurate net asset classification and financial statement presentation.
The book details the process of releasing restrictions as stipulated conditions are met, ensuring proper revenue recognition and compliance with accounting standards. It provides practical examples to illustrate these concepts.
Conditional vs. Unconditional Promises
Accounting for Governmental & Nonprofit Entities thoroughly examines the distinction between conditional and unconditional promises to give, a key element in revenue recognition. The text clarifies that unconditional promises are recognized as revenue immediately, while conditional promises are not, pending fulfillment of specified donor conditions.
The book details how to assess these conditions and appropriately defer revenue recognition. It emphasizes the importance of accurate classification for proper financial reporting and compliance with GAAP standards.

Accounting for Special Events
Accounting for Governmental & Nonprofit Entities details the proper accounting for special events, covering direct and indirect costs, and revenue allocation methods.
Direct Costs
Accounting for Governmental & Nonprofit Entities meticulously explains that direct costs are those specifically attributable to a special event. These encompass expenses like venue rentals, entertainment fees, catering costs, and advertising directly promoting the event.
Accurate tracking of these costs is crucial for determining the net revenue generated by the event. The textbook emphasizes the importance of consistently applying cost allocation methods to ensure reliable financial reporting. Proper documentation and categorization of direct costs are essential for audit trails and transparency.
Indirect Costs
Accounting for Governmental & Nonprofit Entities details that indirect costs are those not directly tied to a specific event, but support overall organizational operations. Examples include administrative salaries, office rent, and utilities.
The textbook stresses the need for a reasonable allocation method to assign these costs to events. This allocation should be consistent and justifiable. Accurate accounting for indirect costs is vital for a complete picture of event profitability and overall financial health, ensuring compliance with reporting standards.
Revenue Allocation
Accounting for Governmental & Nonprofit Entities emphasizes that revenue allocation for special events requires careful consideration. The textbook highlights the importance of distinguishing between direct revenues (from ticket sales, for example) and indirect revenues (like sponsorships).
Allocation methods must be consistently applied and clearly documented. Proper revenue allocation ensures accurate financial reporting, demonstrating the event’s financial performance and its contribution to the organization’s mission, adhering to GAAP guidelines.

Voluntary Health and Welfare Organizations
Accounting for Governmental & Nonprofit Entities details unique accounting challenges within these organizations, including joint cost allocation and program service reporting.
Unique Accounting Considerations
Accounting for Governmental & Nonprofit Entities, as authored by Reck, Lowensohn, and Neely, highlights specific accounting nuances for voluntary health and welfare organizations. These entities often grapple with complexities beyond standard nonprofit accounting.
A key consideration involves the allocation of joint costs – expenses benefiting multiple functions – requiring careful methodology. Furthermore, accurately reporting program services, distinguishing between program and supporting activities, is crucial for financial transparency. The textbook provides detailed guidance on navigating these challenges, ensuring compliance with relevant standards and regulations within this specialized sector.
Allocation of Joint Costs
Accounting for Governmental & Nonprofit Entities, by Reck, Lowensohn, and Neely, dedicates attention to the intricate process of allocating joint costs within voluntary health and welfare organizations. These costs benefit multiple functions – fundraising, program services, and administration – demanding a systematic approach.
The textbook emphasizes the importance of a reasonable and consistent allocation method, often based on proportional benefits or time and effort studies. Accurate allocation is vital for presenting a clear picture of program effectiveness and overall organizational efficiency, adhering to accounting standards.
Reporting of Program Services
Accounting for Governmental & Nonprofit Entities, authored by Reck, Lowensohn, and Neely, details the crucial aspect of reporting program services for voluntary health and welfare organizations. This involves clearly presenting the nature and extent of the organization’s activities that fulfill its mission.
The textbook highlights the necessity of disclosing both the functional expenses related to program services and the accomplishments achieved. This transparent reporting allows stakeholders to assess the organization’s impact and effectiveness in delivering its intended benefits to the community it serves.
















































































