Introduction to Governmental Accounting for Accountants

For instance, it can involve tracking spending on public health services such as hospital facilities, vaccines, and medicines, and comparing these expenses against allocated budgets. Also, since government agencies use people’s taxes and revenue to provide the service, ensuring a transparent use of the funds by the officials is an important goal. State and local government agencies are bound to comply with the generally accepted accounting principles (GAAP). The role and function of the GASB are to set standards and regulations that comply with these principles.

One of the main distinctions between government accounting and corporate accounting is the focus on profitability. While corporate accounting primarily concerns itself profit and loss and enhancing shareholder value, government accounting is about budget compliance and the efficient use of public resources. Governmental accounting holds public officials accountable for the powers, tasks, and public funds delegated to them by the public.

Standards & Guidance

In other words, accounting reports can determine whether a budget or revenue-to-expenditures ratio makes sense. Measurement focus for each government entity depends upon the resources being measured and when the governmental accounting definition effects of those transactions and events are recorded. Accounting and financial reporting are important for government entities and agencies, but for different reasons than for commercial business enterprises.

The “available” concept means that the revenue and other fund resources are collectible within the current period or sufficiently soon thereafter to be available to pay for the current period’s liabilities. The “measurable” concept allows a government to not know the exact amount of revenue in order to accrue it. The majority of government agencies are funded at some level by funds received from various taxes or grants. Because government agencies serve as stewards of taxpayer money, using the money to provide valuable services and goods to the public, there is a need for both uniformity and transparency in the way that financial data is reported. Government accounting refers to the comprehensive process of recording, categorizing, summarizing, and interpreting all financial transactions incurred by the government. This process includes recording the government’s income and expenditures across various departments and projects.

Accountability for government spending

By effectively managing public funds, it can improve resource allocation, reduce wastage, and promote the responsible use of taxpayers’ money. It can help governments to plan and budget better, paving the way for a stable economy and increasing public trust in the government’s financial management. Given the unique needs of governments, a different set of accounting standards have been developed for these organizations. The primary organization that is responsible for creating and updating these standards is the Governmental Accounting Standards Board (GASB). Other differences between government and business include organizational purpose, sources of revenue, the potential for longevity, relationship with stakeholders, and role of the budget. The purpose of governments is to enhance or maintain the well-being of citizens by providing public services following public policy goals.

• Statement 11 of the GASB briefs about the Measurement focus identifies what should be expressed in a financial report or record statement.
• SAM chapter 8300 Budgetary Accounting provides detailed information on the role and importance of budgets, encumbrances, and tracking expenditures.
• Given the unique needs of governments, a different set of accounting standards have been developed for these organizations.
• The GASB Statement 63 provides guidance on the timing of recording a certain financial event.
• Governmental accounting holds public officials accountable for the powers, tasks, and public funds delegated to them by the public.
• In turn, the GASB is funded primarily by accounting support fees paid by brokers and dealers who trade in municipal bonds.
• Over the last decades, major changes have been introduced in government accounting under what is known as the New Public Financial Management (NPFM) reforms.