GOVERNMENT ACCOUNTING A Conceptual Approach

Government accounting presents several challenges to the newcomer more used to for-profit accounting. First, there are two reporting systems. These might be likened to a company having to produce reports based on both its managerial and its financial reporting system. Governments are required to do their internal accounting using fund accounting. They are required to publish reports that reflect the use of fund accounting. In addition, they are required to publish so-called government-wide reports that look much more like for-profit statements. It is very important, therefore, to know at which set of statements one is looking.

Second, governments are legally responsible for the flow of financial resources through the system. They levy and collect taxes, which are then spent in accordance with a budget established by the legislature, be it City Council, of House of Representatives. They must report back to taxpayers how that money was collected and how it was spent. They are much less concerned with measuring the flow of economic resources i.e., with recognizing revenue and matching it with expenses for the simple reason that they are not-for-profit entities and, therefore, have no mandate to measure the profit they make.

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