The government accounting It is the process of recording, analyzing, classifying, synthesizing, communicating and interpreting financial information about the government as a whole. Refers to the field of accounting that finds its application specifically in the public sector or government.
Government accounting reflects in detail the transactions and other economic events that involve the receipt, expense, transfer, usability and disposition of assets and liabilities..
The characteristics of the government accounting system (for example, the basis of accounting, the nature of the financial statements) should be adapted to the needs and capacity of the users..
An accounting system could be very good when compared to international accounting standards, but it could have limited value for the country in question if there were few people familiar with these standards.
Government accounting entities are spread throughout the country, from the capital to the most remote places. Given this margin, the capacity of accounting entities and their staff will vary considerably..
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In order to ensure proper accounting for a wide range of entities, a government accounting system must be:
- Relatively uniform.
- Well documented.
- Simple to learn and operate.
- Easy to consolidate.
A government accounting system typically has eight main components:
- Documents that provide evidence of transactions.
- Bank accounts through which payments and collections are handled.
- Accounting records (cash book, accounting books, etc.).
- Procedures and controls.
- A means to be able to add accounting data.
- Internal accounting reports.
- External accounting reports (financial statements).
- People who work with the system.
The objectives of federal, state, or municipal government agencies in applying accounting principles are different from the primary business objective of the private sector, which is to make a profit..
Budgets are one of the most important attentions in government accounting, since government agencies are fiscally responsible to taxpayers and must demonstrate compliance with the use of resources as planned in the budgets..
In the private sector, the budget is a tool for financial planning, and therefore it is not mandatory to comply with it.
The government accounting system has an approach to measurement that is different from that of private sector accounting..
Instead of measuring the flow of financial resources, government accounting measures the flow of financial resources.
Instead of recognizing income when earned and expenses when incurred, income is recognized when money is available to settle liabilities within the current accounting period, and expenses are recognized when current resources are exhausted..
A fund is an accounting entity with a set of accounts, which is used to record financial resources and liabilities, as well as operating activities. This is the most common form of government accounting in most countries..
By dividing the resources into multiple funds, the government can more closely monitor the use of the resources. This minimizes the risk of overspending or spending in areas not authorized by a government budget.
Government funds are focused on current financial resources. This means assets that can be converted into cash and liabilities that will be paid with that cash..
Government fund balances do not include long-term assets, or any other asset that is not converted into cash to settle short-term liabilities..
Similarly, these balance sheets will not contain any long-term liabilities, since the use of current financial resources is not required for their settlement. This measurement approach is only used in government accounting.
- Record financial transactions of income and expenses related to government organizations.
- Conduct government financial business in a timely, efficient, and reliable manner (for example, make payments, settle liabilities, collect amounts owed, buy and sell assets, etc.) subject to necessary financial controls.
- Maintain in a systematic way and with easy access all accounting and documentary records, such as evidence of past transactions and current financial status, so that transactions can be identified and tracked in detail.
- Provide periodic and reliable financial statements, which contain financial information duly classified on the operation of the public fund, as a basis for its management and accountability, and for decision-making.
- Maintain adequate financial records for budget control, internal control, and auditors' needs.
- Provide the means for effective management of government assets, liabilities, expenditures and revenues.
- Carry out expenditures in accordance with appropriate government legal regulations and provisions.
- Avoid overspending beyond the government approved budget limit.
- Facilitate annual budget estimation by providing historical financial data of government revenues and expenditures.
Government representatives, and officials appointed by them, must be accountable to the public for the delegated powers and tasks..
The public, who have no choice but to delegate, are in a position that differs significantly from that of the shareholders. Therefore, you need financial information, which must be provided by accounting systems, that is applicable and relevant to them and their purposes..
Government accounting maintains strict control of resources. Likewise, it divides the activities into different funds to clarify how resources are being channeled to various programs..
This accounting approach is used by all types of government entities, including federal, state, municipal, and special-purpose entities..
Relevant stakeholders, especially officials and representatives, need financial information accounted for, organized and presented for the purposes of their decision-making.
These objectives have nothing to do with net income results, but rather refer to service delivery and efficiency..
The taxpayer simply wants to pay as little tax as possible for essential services for which the law requires to collect money.
Government accounting requires the executive to indicate the amount, nature, and purpose of the planned expense. It also requires the necessary taxes to finance it.
It also requires the executive to request and obtain the approval of the legislature, and to comply with the custody and granting of the expenses approved by the legislator, demonstrating such compliance..
Under government accounting, the legislature can direct and also control government behavior.
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