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written by | September 16, 2022

Know Everything About Governmental Accounting: Features and Objectives

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Processing an entity's financial transactions is what accounting is all about. It produces and distributes its consumer's essential financial information. Therefore, it is a process of documenting, categorising, and summarising financial transactions as well as disseminating the outcomes of its activities.

There are various accounting specialities. Government accounting is one of its divisions. The area of accounting known as "government accounting" is employed in government organisations. Compared to other accounting specialities like commercial accounting, government accounting is distinct.

Did you Know?

The Indian government accounting system is based on the double-entry accrual system.

What is Governmental Accounting?

Governmental accounting is the process of recording, classifying, and summarising financial transactions to provide information that is useful in making decisions about allocating resources within a government. Governmental accounting differs from commercial accounting in several ways, the most significant of which is the focus on accountability to the public rather than shareholders. Another key difference is how governmental accounting is organised around functions rather than around types of business activity. 

Governmental accounting systems must meet the needs of both external and internal users. External users, such as taxpayers, need information about how their tax money is being spent. Internal users, such as government managers, need information about the resources that are available to them and how those resources are being used.

The three basic types of financial statements used in governmental accounting are the balance sheet, the statement of revenues and expenditures, and the statement of changes in fund balances. The balance sheet shows the financial position of the government at a specific point in time. The statement of revenues and expenditures shows the flow of resources into and out of the government during a specific period. The statement of changes in fund balances shows how the balances of the various government funds have changed during a specific period.

Also Read: What Is Branch Accounting? Learn About Branch Accounting Types & Examples

Functions and Objectives of Governmental Accounting

1. To ensure compliance with laws and regulations: Governmental accounting is primarily concerned with ensuring that entities comply with the myriad of laws and regulations that apply to them.

2. To provide transparency: One of the most important objectives of governmental accounting is to provide transparency in the financial affairs of government entities. This is important to promote accountability and public trust.

3. To produce accurate financial statements: To make informed decisions, those in charge of governmental entities need accurate financial statements. Governmental accounting strives to produce financial statements that are free from material misstatements.

4. To safeguard assets: Another key objective of governmental accounting is to safeguard the assets of government entities. This includes ensuring that assets are used for their intended purpose and protected from loss or theft.

5. To ensure efficient and effective operations: Governmental accounting also strives to ensure that entities operate efficiently and effectively. This includes ensuring that resources are used effectively, and operations are aligned with the entity’s strategic goals.

6. To manage risk: Governmental entities are exposed to various financial, operational, and compliance risks. Governmental accounting helps entities manage these risks by identifying and monitoring them.

7. To make informed decisions: Governmental accounting provides information that is useful in making informed decisions. This information is used by those in charge of governmental entities to make decisions about resource allocation, operations, and other strategic matters.

8. To provide accountability: Governmental accounting is important in providing accountability for the use of public funds. Taxpayers use this information to hold government officials accountable for their actions.

9. To promote public trust: The transparent nature of governmental accounting helps promote public trust in the government.

10. To help ensure efficient and effective use of resources: The information provided by governmental accounting can help ensure that resources are used efficiently and effectively.

Also Read: Understand Cash Accounting - Cash Account Meaning, Advantages And Limitations

Features of Governmental Accounting

1. Governmental accounting is primarily focused on accountability. This means that governmental entities must be able to show how they are spending public funds and whether or not they are achieving their budgetary goals.

2. Governmental accounting is subject to different rules and regulations than for-profit accounting. For example, governmental entities must follow the Generally Accepted Accounting Principles (GAAP), as it provides different set of rules for not-for proft and for-profit businesses. 

3. Governmental accounting is complex due to the large number of transactions that take place. Governmental entities must track and account for revenue from many different sources and expenditures on a wide variety of items.

4. Governmental accounting is often done on a cash basis rather than an accrual 

basis. This means that revenue is only recognised when it is received, and expenses are only recognised when they are paid.

5. Governmental accounting is subject to audit by government agencies. These audits ensure that public funds are being spent appropriately and that the financial statements of governmental entities are accurate.

6. Governmental accounting is used to prepare the government's budget. The government's expenditure goes towards public services, such as education, healthcare, and infrastructure. A budget is an important tool in governmental accounting because it helps the government track its spending and ensure that it stays within its budget.

Also Read: Learn Cost and Management Accounting along with its Meaning, Objectives & Types

Principles Followed by Governmental Accounting

It means that certain guidelines must be followed to produce accurate financial statements. These guidelines are known as generally accepted accounting principles (GAAP).

1. Governmental accounting is the process of identifying, measuring, and communicating financial information about governmental entities.

Governmental accounting is the process of recording, classifying, and summarising financial transactions to provide information that is useful in making decisions about allocating resources within a governmental entity. Governmental accounting is governed by generally accepted accounting principles (GAAP), which are established by an independent body such as the Government Accounting Standards Board (GASB).

2. Governmental accounting is governed by generally accepted accounting principles (GAAP), which are established by an independent body such as the Government Accounting Standards Board (GASB).

GAAP guidelines and standards for financial reporting are designed to ensure that financial statements provide accurate and transparent information about a governmental entity’s financial position, performance, and cash flows. Governments use GASB standards in their financial statements and by auditors to assess the reasonableness of those statements.

3. Governmental accounting focuses on the government's financial position rather than on profit or loss.

Governmental accounting focuses on the measurement of the financial position, performance, and cash flows of governmental entities. Unlike for-profit entities, governmental entities do not prepare their financial statements to earn a profit. Instead, they use their financial statements to report on their stewardship of public resources.

4. Governmental accounting is used to make financial and policy decisions at all levels of government.

Policymakers use governmental accounting information at all levels of government to make informed decisions about the use of public resources. Taxpayers and other interested parties also use governmental accounting data to hold the government accountable for its spending and decision-making.

5. Governmental accounting information is used by taxpayers, legislators, and other interested parties to hold the government accountable for its spending and decision-making.

Governmental accounting information is used by taxpayers, legislators, and other interested parties to hold the government accountable for its spending and decision-making. This accountability is essential to maintaining the public’s trust in government. Governmental accounting data can be used to assess the efficiency and effectiveness of government spending and identify areas where improvements can be made.

How is Governmental Accounting Different from Profit-Based Accounting?

Profit-based accounting is an accounting system that is focused on making a profit. This type of accounting is not required to follow the same level of transparency as governmental accounting and instead is focused on maximising profits for the company. This can sometimes lead to companies using accounting practices that are not in the public's best interest, such as hiding expenses or inflating revenue.

The main difference between governmental accounting and profit-based accounting is that governmental accounting is focused on public policy, while profit-based accounting is focused on making a profit. Governmental accounting is required by law to report financial information in a transparent and accountable way to the public. Profit-based accounting is not required to follow this same level of transparency and instead is focused on maximising profits for the company. This can sometimes lead to companies using accounting practices that are not in the public's best interest, such as hiding expenses or inflating revenue.

Also Read: Learn about Inventory Accounting - Meaning, Objectives, Types & Method

Conclusion:

The U.S. Federal government, for example, uses accrual basis accounting, meaning that it recognises expenses when they are incurred, regardless of when they are paid. This is in contrast to cash basis accounting, which only recognises expenses when they are paid.

In India, the accrual basis of accounting is used for both the central and state governments. This means that all expenses are recognised when they are incurred, regardless of when they are paid. This is in contrast to the cash basis of accounting, which only identifies expenses when they are paid.

The Indian government also uses a special accounting system called the double-entry system. This system is designed to ensure that all transactions are recorded in two separate accounts. This system provides a more accurate picture of the government's financial position and helps to prevent errors. 
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FAQs

Q: What is the difference between government accounting and financial account?

Ans:

The difference between government accounting and financial accounting is that government accounting is based on the principle of accrual accounting. This means that the government recognises revenue and expenses when they are earned or incurred, regardless of when the money is received or paid. Financial accounting is based on the principle of cash accounting, which means that the government only recognises revenue and expenses when the money is received or paid.

Q: Who keeps the accounts of the government in India?

Ans:

The accounts of government in India are kept by the Comptroller and Auditor General of India (CAG). The CAG is an independent body that is responsible for auditing the government's financial statements. The CAG also has the power to investigate any irregularities in the government's accounts.

Q: What are the three forms of governmental accounting?

Ans:

The three forms of governmental accounting are fund accounting, budgetary accounting, and proprietary accounting. Fund accounting is used to track money that is set aside for specific purposes. Budgetary accounting is used to track the government's spending, and proprietary accounting is used to track the government's revenue and expenses.

Q: What makes government accounting different?

Ans:

Government accounting differs from other types of accounting because it is based on the principle of accrual accounting. This means that the government recognises revenue and expenses when they are earned or incurred, regardless of when the money is received or paid. This type of accounting provides a more accurate picture of the government's financial position.

Q: What is the importance of accounting for government?

Ans:

Accounting for government is important to ensure that taxpayer money is being used appropriately and for the intended purpose. This type of accounting provides transparency and accountability in how the government is spending money, and it also helps the government to track and manage its finances.

Q: What type of accounting does the government use?

Ans:

The government uses a type of accounting called fund accounting. This type of accounting is used to track money that is set aside for specific purposes. The government uses this accounting type to ensure that taxpayer money is being used appropriately and for the intended purpose.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.