Hello, I am trying to figure out this question for Government Accounting. The qu

Question

Hello,

I am trying to figure out this question for Government Accounting. The question comes from the Essentials of Accounting for Governmental and Not-for-Profit Organizations book by Paul A. Copley, and the questions involves 14-4, number 2. Here is the picture:

That questions comes from the Statement of Net Cost and the answer is Federal Deposit Insurance Corporation with a negative of $15.9 million. The Net Profit is calculated by taking the Gross Cost and the Earned Revenue. Why is that? Should it be Department of Health and Human Services? Here is the Picture:

Please let me know why is it that answer as I already look through the notes and couldn't find any answer. Thank you.

Explanation / Answer

In the statement of net cost the first column is indicating total expenses or cost incurred by governmet for running the service of that department. Second column is indicating how much revenue this department has contributed. Thus net cost indicates net expenses incurred by the government to run the service of the department. Here a very high net cost will mean government has to spend that net amout for that department. Smaller is the net cost better will be for the government to run that department. So negative net cost will mean, the department after satisfying its own requirement is contributing some fund to government for running other department. Thus a department contributing highest amount to government will be considered as largest government unit based on net cost.

Here Federal deposit Insurance Corporation has largest net cost negative amount of -15.9. It implies that it iscontributing maximum positive amount to government to run other department. It is highest net revenue earner to government. So it is largest government unit based on net cost. The Department of service and health care is smallest net revenue earner to government. Government has to spent highest money for it. Thus Federal Deposit Insurance corporation will be the right answer.

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