GOVERNMENTAL
ACCOUNTING
Governmental
accounting is an umbrella term which refers to the various accounting systems
used by various public sector entities. In the United States, for instance,
there are two levels of government which follow different accounting standards
set forth by independent, private sector boards. At the federal level, the
Federal Accounting Standards Advisory Board (FASAB) sets forth the accounting
standards to follow. Similarly, there is the Governmental Accounting Standards
Board (GASB) for state and local level government.
Public sector
accounting refers to the field of accounting that specifically finds
application in the public sector or government. A special field of accounting
exists because: - The objectives to which accounting reports to differ
significantly from that for which generally accepted accounting practice has
been developed for in the private (business) sector; and - The usage of the
results of accounting processes of government differs significantly from the
use thereof in the private sector.
The unique objectives
of government accounting do not preclude the use of the double entry accounting
system. There can, however, be other significant differences with private
sector accounting practices, especially those that are intended to arrive at a
net income result. The objectives for which government entities apply
accountancy can be organized in two main categories: - The accounting of
activities for accountability purposes. In other words, the representatives of
the public, and officials appointed by them, must be accountable to the public
for powers and tasks delegated. The public, who have no other choice but to
delegate, are in a position that differs significantly from that of
shareholders and therefore need financial information, to be supplied by
accounting systems, that is applicable and relevant to them and their purposes.
- Decision-making purposes. The relevant role-players, especially officials and
representatives, need financial information that is accounted, organized and
presented for the objectives of their decision-making. These objectives bear,
in many instances, no relation to net income results but are rather about
service delivery and efficiency. The taxpayer, a very significant group, simply
wants to pay as little as possible taxes for the essential services for which
money is being coerced by law.
The governmental
accounting system sometimes uses the historic system of fund accounting. A set
of separate, self-balancing accounts are responsible for managing resources
that are assigned to specific purposes based on regulations and limitations.
The governmental
accounting system has a different focus for measuring accounting than private
sector accounting. Rather than measuring the flow of economic resources,
governmental accounting measures the flow of financial resources. Instead of
recognizing revenue when they are earned and expenses when they are incurred,
revenue is recognized when there is money available to liquidate liabilities
within the current accounting period, and expenses are recognized when there is
a drain on current resources.
Governmental financial
statements must be accompanied by required supplementary information (RSI). The
RSI is a comparison of the actual expenses compared to the original budget
created at the beginning of the fiscal year for the Government's General Fund
and all major Special Revenue Funds.
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