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What Is Government Accounting?

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Public sector entities in the United States require their own system for accounting. These will be used in all state, federal, and local agencies. Government accounting has its own principles and guidelines. These are provided by the Federal Accounting Standards Advisory Board (FASAB) or the Governmental Accounting Standards Board (GASB). Federal agencies will rely on the guidelines provided by the FASAB while other public agencies will use GASB guidelines.

Federal Accounting Standards Advisory Board

FASAB

FASAB has been tasked with the job of developing accounting standards for federal agencies. The aim is to ensure that all financial reports are easy to read, relevant, and reliable. This agency is constantly working to improve the accounting systems within the organizations that fall under their control. The aim is not only to ensure that such government accounting complies with the law but that it is also as effective as possible.

Governmental Accounting Standards Board

GASB

GASB has the responsibility for developing standards which affect local and state organizations. Its role is very similar to FASAB but it is a private non-governmental body. The Financial Accounting Foundation oversees the work of GASB. It regularly provides technical updates and bulletins to ensure that accounting is as effective as possible at this level of public affairs.

How Government Accounting Works in Practice

Public sector entities not only have to consider their current funds but also any other money that will become available throughout the year. Most of this money will come from government funds or from local taxes. Decisions about how much money will be allocated to the different public sector departments will usually be made months in advance. It is important that these agencies are able to work out how much money they are going to need over a year so that they can know how much money they will need.

Budgets, Appropriations, and Encumbrances are the main method for splitting up government accounting and involve:

  • Budgets are the money the public bodies will need for the year
  • Appropriations refer to a particular amount of money that is set aside for a specific project. For instance, if there is a project to create a new back to work scheme there will be money set aside just for this. This money will then be considered separate from other funds as it will only be available for that one project. If there is a need to remove money from appropriations there will usually be a lot of paperwork involved.
  • Government bodies will usually have costs associated with keeping them operating. This money is referred to as encumbrances. This fund could include things like payroll and purchases of new equipment.

Government accounting differs from the type of accounting used in an average business. It has to because it needs to because the environment is very different. This type of accounting faces special challenges because of the possibilities of waste. It is also a type of accounting that can come under a lot of scrutiny.

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Meet the Author

Anthony Carter currently resides in Fife, Scotland with his wife Lisa, and their three wonderful children. As a senior editor for various publications, if he's not reading and writing, you would find him photographing and traveling to some of the most far-flung locations around the world.

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