What is the difference between government accounting and financial accounting?
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Government and nonprofit accounting are often lumped together as they both use fund accounting principles. However, the way in which they operate, organize financial information, and report on their data differ greatly. Show
Below are the 3 major differences between nonprofit and government accounting processes. 3 Big Differences Between Nonprofit and Government Accounting1. Accounting StandardsLike all accounting programs, there are certain guidelines and principles an organization and entity must follow. Both nonprofits and government agencies must follow GAAP, the Generally Accepted Accounting Principles. GAAP’s main objective is to ensure that financial information is reported on effectively and efficiently. This is done through the GAAP’s set of principles, standards, and procedures that aim to help to standardize accounting across the industry and regardless of for-profit, NPO, or government status. View Upcoming WebinarsIn addition to GAAP, government and nonprofit organizations have additional standards they need to follow that differ from each other:
Both the FASB and GASB “develop and issue accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information.” However the GASB is intended for “taxpayers, public officials, investors, and others who use financial reports”, specifically for state and local government agencies within the United States. The GASB defines three different reporting methods for government accounting. The FASB is intended for “investors and others who use financial reports,” essentially any public, private, or nonprofit organization or business. Unlike the GASB, the FASB defines only one method of reporting for nonprofit accounting. 2. StatementsThere are 3 main financial statements that nonprofits and government entities use in their reporting. Two of them are the same: Statement of Activities and Statement of Cash Flows. The third statement, while technically a statement of the same information, is referred to differently by both entities:
These statements are similar to balance sheets. They summarize the assets and liabilities, showing the net assets of the organization and assessing the financial health of the government body or organization. The statements are similar to each other because in both the nonprofit and the government, there is no owner. The main difference is that the statements represent the assets that affect different people: for the government’s statements, it affects the taxpayers; the nonprofit’s statements, it affects those who benefit from the nonprofit. 3. ReportingGovernment Accounting ReportsEvery year, government organizations must put together a CAFR (Comprehensive Annual Financial Report). The CAFR analyzes the financial status of the entity, and is put together using the GAAP and GASB. The CAFR can include overall financial data as well as information on specific funds and reports the results of the period in question, often the financial year. The CAFR also includes consolidated financial statements and includes accumulations from previous years. This also includes a comparison of the period budget and the actual spend. Nonprofit Accounting ReportsNonprofit organizations are not required to publish CAFRs. However, they are required to put together financial reports for their Board of Directors and subsequent investors. These are called the Report of Consolidated Financial Statements which will include:
Nonprofits typically do this through their fund accounting software, as most solutions include templates that make reporting easier to read. Contact Capital Business Solutions for Nonprofit Accounting Software Solutions TodayGet the help you need in finding the right fund accounting software solution for your organization. Capital Business Solutions provides integrated financial and fundraising software solutions for both public and private sector organizations. To learn more, contact Capital Business Solutions by calling (843) 971-9061 or fill out the form below. Governmental accounting maintains tight control over resources, while also compartmentalizing activities into different funds in order to clarify how resources are being directed at various programs. This approach to accounting is used by all types of government entities, including federal, state, county, municipal, and special-purpose entities. The Governmental Accounting Standards BoardGiven the unique needs of governments, a different set of accounting standards has been developed for these organizations. The primary organization that is responsible for creating and updating these standards is the Governmental Accounting Standards Board (GASB). The GASB is tasked with the development of accounting and financial reporting standards for state and local governments, while the Financial Accounting Standards Board (FASB) has the same responsibility, but for all other entities not related to governmental activities. Fund AccountingA fund is an accounting entity with a self-balancing set of accounts that is used to record financial resources and liabilities, as well as operating activities, and which is segregated in order to carry on certain activities or attain targeted objectives. A fund is not a separate legal entity. Funds are used by governments because they need to maintain very tight control over their resources, and funds are designed to monitor resource inflows and outflows, with particular attention to the remaining amount of funds available. By segregating resources into multiple funds, a government can more closely monitor resource usage, thereby minimizing the risk of overspending or of spending in areas not authorized by a government budget. Some types of funds use a different basis of accounting and measurement focus. To clarify the difference between these concepts, the basis of accounting governs when transactions will be recorded, while the measurement focus governs what transactions will be recorded. The Basis of AccountingThe accrual basis of accounting is adjusted when dealing with governmental funds. The sum total of these adjustments is referred to as the modified accrual basis. Under the modified basis of accounting, revenue and governmental fund resources (such as the proceeds from a debt issuance) are recognized when they become susceptible to accrual. This means that these items are not only available to finance the expenditures of the period, but are also measurable. The “available” concept means that the revenue and other fund resources are collectible within the current period or sufficiently soon thereafter to be available to pay for the current period’s liabilities. The “measurable” concept allows a government to not know the exact amount of revenue in order to accrue it. The Focus of Governmental Financial ReportingThe key measurement focus in a government fund’s financial statements is on expenditures, which are decreases in the net financial resources of a fund. Most expenditures should be reported when a related liability is incurred. This means that a governmental fund liability and expenditure is accrued in the period in which the fund incurs the liability. The focus of governmental funds is on current financial resources, which means assets that can be converted into cash and liabilities that will be paid for with that cash. Stated differently, the balance sheets of governmental funds do not include long-term assets or any assets that will not be converted into cash in order to settle current liabilities. Similarly, these balance sheets will not contain any long-term liabilities, since they do not require the use of current financial resources for their settlement. This measurement focus is only used in governmental accounting. What are the main differences between government accounting and accounting for businesses?Information: Government accounting provides information to the government about the receipts, transfer and deposition of public funds. Commercial accounting provides information to the concerned parties about the operating result and financial position of the business.
What is different about government accounting?Some of the key differences include: The purpose of government, which is to provide services to the citizenry, not to make a profit. The users of a government's financial reports which are citizens, their elected representatives, oversight bodies, and creditors.
What is government accounting?Government accounting is the recording and management of financial activities of governments at Commonwealth, state and local levels. Government accountants prepare and review financial documentation for the government and its taxpayers.
What is the difference between government accounting and private sector accounting?Public accounting and private accounting are similar in that they both focus on a company's financial statements. Public accounting is regulated by the government, while private accounting is not. Public accounting also has to follow generally accepted accounting principles (GAAP), while private accounting does not.
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