What is Governmental Accounting?
Governmental accounting maintains tight control over resources, while also compartmentalizing activities into different funds in order to clarify how resources are being directed at various programs. This approach to accounting is used by all types of government entities, including federal, state, county, municipal, and special-purpose entities.
The Governmental Accounting Standards Board
Given the unique needs of governments, a different set of accounting standards has been developed for these organizations. The primary organization that is responsible for creating and updating these standards is the Governmental Accounting Standards Board [GASB]. The GASB is tasked with the development of accounting and financial reporting standards for state and local governments, while the Financial Accounting Standards Board [FASB] has the same responsibility, but for all other entities not related to governmental activities.
Fund Accounting
A fund is an accounting entity with a self-balancing set of accounts that is used to record financial resources and liabilities, as well as operating activities, and which is segregated in order to carry on certain activities or attain targeted objectives. A fund is not a separate legal entity. Funds are used by governments because they need to maintain very tight control over their resources, and funds are designed to monitor resource inflows and outflows, with particular attention to the remaining amount of funds available. By segregating resources into multiple funds, a government can more closely monitor resource usage, thereby minimizing the risk of overspending or of spending in areas not authorized by a government budget.
Some types of funds use a different basis of accounting and measurement focus. To clarify the difference between these concepts, the basis of accounting governs when transactions will be recorded, while the measurement focus governs what transactions will be recorded.
The Basis of Accounting
The accrual basis of accounting is adjusted when dealing with governmental funds. The sum total of these adjustments is referred to as the modified accrual basis. Under the modified basis of accounting, revenue and governmental fund resources [such as the proceeds from a debt issuance] are recognized when they become susceptible to accrual. This means that these items are not only available to finance the expenditures of the period, but are also measurable. 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 Focus of Governmental Financial Reporting
The key measurement focus in a government fund’s financial statements is on expenditures, which are decreases in the net financial resources of a fund. Most expenditures should be reported when a related liability is incurred. This means that a governmental fund liability and expenditure is accrued in the period in which the fund incurs the liability.
The focus of governmental funds is on current financial resources, which means assets that can be converted into cash and liabilities that will be paid for with that cash. Stated differently, the balance sheets of governmental funds do not include long-term assets or any assets that will not be converted into cash in order to settle current liabilities. Similarly, these balance sheets will not contain any long-term liabilities, since they do not require the use of current financial resources for their settlement. This measurement focus is only used in governmental accounting.
journal article
Comparison between Governmental and General AccountingThe Accounting Review
Vol. 23, No. 4 [Oct., 1948]
, pp. 397-400 [4 pages]
Published By: American Accounting Association
//www.jstor.org/stable/240797
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Journal Information
The Accounting Review is the premier journal for publishing articles reporting the results of accounting research and explaining and illustrating related research methodology. The scope of acceptable articles embraces any research methodology and any accounting-related subject. The primary criterion for publication in The Accounting Review is the significance of the contribution an article makes to the literature.
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The American Accounting Association is the world's largest association of accounting and business educators, researchers, and interested practitioners. A worldwide organization, the AAA promotes education, research, service, and interaction between education and practice. Formed in 1916 as the American Association of University Instructors in Accounting, the association began publishing the first of its ten journals, The Accounting Review, in 1925. Ten years later, in 1935, the association changed its name to become the American Accounting Association. The AAA now extends far beyond accounting, with 14 Sections addressing such issues as Information Systems, Artificial Intelligence/Expert Systems, Public Interest, Auditing, taxation [the American Taxation Association is a Section of the AAA], International Accounting, and Teaching and Curriculum. About 30% of AAA members live and work outside the United States.
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