Make it unique and references

Article URL: https://www.encyclopedia.com/finance/finance-and-accounting-magazines/government-accounting

1. Summary of the article (analysis,not article reviews)

2. State the purpose, governmental or not-for-profit accounting problem or issue

3. Provide critical analysis and interpretations of the article

4. Conclusions.

GOVERNMENT ACCOUNTING

Under government accounting, the legislature is allowed to steer and control the behavior of the government.

The basic foundation of governmental financial accounting and reporting in theUnited Stateswas established by the Governmental Accounting Standards Boards (GASB) in its "Objectives of Financial Reporting,"

Two basic types of budgets are used by governments and are the same as those used by corporate entitiesan annual operating budget and a capital budget. Governmental annual operating budgets include estimated revenues and appropriations for expenditure for a specific fiscal year. Capital budgets control the expenditures for construction projects and fixed asset acquisitions. Operating or capital budgets are recorded in the accounting system as a means of control or compliance.

Many governmental entities are required by law to maintain a balanced budget in that revenues must equal or exceed appropriations;

Governmental accounting uses a fund accounting structure as a means of controlling resources. That is, each type of financial activity is segregated into a separate set of a self-balancing assets, liability, and net asset accounts. GASB codification identifies three fund groupsgovernmental, proprietary, and fiduciary (GASB, 1999, Sections 1100.103 and 1100.105). Governmental funds are used to account for financial resources used in the day-to-day operations of the government. Proprietary funds are those used to account for the government's business activities where fees are charged for the services rendered, for example, utility services. Fiduciary funds are those used to account for funds held by the government in trust for others that cannot be used to support the government's programs, for example, an employee pension fund.

The management's discussion and analysis (MD&A) is required supplementary information presented before the financial statements that is subjected to limited auditor review and presents an overview of the government's financial activities for the part year.

The discussion compares the government's current-year results with the previous year and may include charts, graphs, or tables to illustrate the discussion. The discussion is general rather than specific so that the most relevant information is provided. At a minimum, fourteen prescribed elements are a part of the MD&A discussion. These elements explain the relationship among the financial statements and any significant differences in the information provided in the financial statement.

The full accrual information reports the full cost of providing government services, with details on how much of the cost is borne by taxpayers and by specific users of the government's service.

The statement of net assets displays information about the government as a whole, reports all financial and capital resources, and assists the financial statement user in assessing the medium- and long-term operational accountability of the government.

In addition to the government-wide full accrual information, state and local governments present financial statements on the fund-based modified accrual basis. In the modified accrual basis of accounting, revenues are recognized only when they become both measurable and available to finance expenditures for the fiscal period. Expenditures are recognized when the related liabilities are incurred, if measurable, except for unmetered interest on long-term debt, which is recognized when legally due.

Fund-based financial statements assist in assessing the government's short-term fiscal accountability. Most funds are established by governments to show restrictions on the planned use of resources or to measure, in the short-term, the revenues and expenditures of a particular activity.

Fund activity displayed in the fund-based financial statements is grouped by governmental, proprietary, and fiduciary categories as identified by the GASB codification.

A balance sheet and a statement of revenues, expenditures, and change in fund balance are required for each of the three fund groups. Because the fund financial statements are prepared using the modified accrual basis, a required reconciliation is prepared that explains the differences between the net change in fund balances and the change in net assets in the government-wide statement of activities. The proprietary funds also present a statement of cash flows. Unlike corporate cash flow statements, the governmental cash flow statement is prepared using the direct method and has four categoriesoperating, noncapital financing, capital financing, and investing activities.

Although some similarities exist between accounting for state and local governments and accounting for thefederal government, there are selected areas specific to each.

Federal accounting provides the information needed for financial management as well as the information needed to demonstrate compliance with budgetary and other legal requirements. Thus, federal accounting is based on a two-track system.