Governmental accounting
Encyclopedia
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.
and governmental accounting. The main reasons for this difference is the environment of the accounting system. In the government environment, public sector entities have differing goals, as opposed to the private sector entities' one main goal of gaining profit. Also, in government accounting, the entity has the responsibility of fiscal accountability
which is demonstration of compliance in the use of resources in a budgetary context. In the private sector, the budget is a tool in financial plan
ning and it isn't mandatory to comply with it.
. 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.
Umbrella term
An umbrella term is a word that provides a superset or grouping of concepts that all fall under a single common category. Umbrella term is also called a hypernym. For example, cryptology is an umbrella term that encompasses cryptography and cryptanalysis, among other fields...
which refers to the various accounting systems used by various public sector
Public sector
The public sector, sometimes referred to as the state sector, is a part of the state that deals with either the production, delivery and allocation of goods and services by and for the government or its citizens, whether national, regional or local/municipal.Examples of public sector activity range...
entities. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, 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
Federal Accounting Standards Advisory Board
The Federal Accounting Standards Advisory Board is a United States federal advisory committee whose mission is to develop generally accepted accounting principles for federal financial reporting entities....
(FASAB) sets forth the accounting standards to follow. Similarly, there is the Governmental Accounting Standards Board
Governmental Accounting Standards Board
The Governmental Accounting Standards Board is currently the source of generally accepted accounting principles used by State and Local governments in the United States of America...
(GASB) for state and local level government.
Public vs. Private Accounting
There is an important difference between private sector accountingAccountancy
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in...
and governmental accounting. The main reasons for this difference is the environment of the accounting system. In the government environment, public sector entities have differing goals, as opposed to the private sector entities' one main goal of gaining profit. Also, in government accounting, the entity has the responsibility of fiscal accountability
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....
which is demonstration of compliance in the use of resources in a budgetary context. In the private sector, the budget is a tool in financial plan
Financial plan
In general usage, a financial plan is a series of steps which are carried out, or goals that are accomplished, which relate to an individual's or a business's financial affairs. This often includes a budget which organizes an individual's finances and sometimes includes a series of steps or...
ning and it isn't mandatory to comply with it.
Governmental Accounting
The governmental accounting system uses the historic system of fund accountingFund Accounting
Fund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments...
. A set of separate, self-balancing accounts are responsible for managing resources that are assigned to specific purposes based on regulations and limitations
Budget constraint
A budget constraint represents the combinations of goods and services that a consumer can purchase given current prices with his or her income. Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices...
.
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
Revenue
In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
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.
See also
- Classification of the Functions of GovernmentClassification of the Functions of GovernmentClassification of the Functions of Government is a classification defined by the United Nations Statistics Division. These functions are designed to be general enough to apply to the government of different countries. The accounts of each country in the United Nations are presented under these...