Summary: Government Accounting

Read the summary and the most important questions on Government accounting

• Chapter 1 > Introduction and Background

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• What are generally accepted accounting principles (GAAP)? Describe four principles:

  1. Accounting rules and conventions - used to prepare financial statements. 
     
     
  2. Various types of transactions - assets and liabilities. 
     
     
  3. Principles come from a variety of sources. 
     
     - Common practices - used over a long period of time. 
     - Accounting rule makers - issue accounting standards that specify accounting treatments for a specific type of transactions. 
     
     
  4. GAAP consists out of accounting principles rather than specific rules. 
     
     - Recent accounting scandals - transactions were structured in ways that met the technical requirements of GAAP, but were accounted for in a misleading way. 

• Why is governmental accounting different from commercial accounting?

  1. Authority from citizenry (voters, service recipients, taxpayers). 
     
     
  2. Flow of resources between layers (For example, FED, state, local, cities, towns, villages). 
     
     
  3. Taxpayers and relationship with the services they receive. 
     
     

• Chapter 2 - Basic Governmental Accounting concepts

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• Explain the cash basis of accounting:

  • Revenues are recorded when cash is received. 
    
    
  • Expenses are recorded when cash is paid out. 
    
    
  • Unacceptable for preparing government statements. 
    
    

• Explain the accrual basis of accounting:

  • Revenues recorded when earned or the right to receive. 
    
    
  • Expenses recorded when incurred. 
    
    
  • Only accounting basis acceptable for commercial enterprises and not-for-profit (non-profit) organizations. 
    
    

• Used by governmental funds. Between cash and accrual basis. Revenues recognized when they are susceptible to accural > Measurable (a reasonable estimate of the revenue) and availible (revenue collectable within current accounting period or soon enough). Expenses are generally recognised when they occur (similar to the accrual basis). What definition is described above? 

  Modified accrual basis of accounting.

• Define the Budgetary basis of accounting:

  • Budget to actual comparison information (budget = legal entitlement to spend an amount of money in a specified policy area/goal). 

• Budgetary basis of accounting. What measurement focus is used (what transactions are recorded?)

  • Economic resources measurement focus. 
    Government-wide financial statements, proprietary funds. 
    
    
  • Current financial resources measurement focus > Governmental focus: general fund, special fund, capital projects fund.  

• Transactions/events that improve the economic position.

  Revenues.

• Transactions/events that diminish the economic position.

  Expenses.

• Does a transaction affect the economic condition of the entity? Long-term assets and long-term liabilities on the statement of financial position. What focus is described above? 

  Economic resources measurement focus.