Government Accounting

Government accounting is driven by the goal of public accountability and uses a different reporting standard called the Generally Accepted Accounting Principles (GAAP) for the public sector. It also employs fund accounting, which focuses on accountability rather than profitability.

Fund accounting is a system of accounting used by non-profit entities and governments which focuses on accountability and stewardship rather than profitability. It involves segregating financial resources into categories (or "funds") based on regulations, restrictions, or specific purposes. 

As public entities utilize taxpayer dollars, there's a higher level of accountability required to ensure the appropriate use of these funds. Transparent accounting ensures that governmental organizations can be held accountable by the public, auditors, and other stakeholders. 

Key financial statements in governmental accounting include the Statement of Net Position, Statement of Activities, Fund Financial Statements, and notes to these statements. 

Most governmental entities are required to undergo an annual external audit by independent auditors. These audits evaluate the accuracy of financial statements and ensure compliance with applicable laws and regulations. 

GASB establishes accounting and financial reporting standards for U.S. state and local governments. They ensure consistency, clarity, and transparency in government financial statements. 

While businesses can adopt some principles of government accounting, especially if they want to prioritize transparency and accountability, they usually adhere to the GAAP for businesses, set by the Financial Accounting Standards Board (FASB)

Government accounting must account for public funds, which come with unique restrictions and stipulations. This can include grant tracking, adherence to budgetary restrictions, and ensuring that public monies are only used for their designated purposes. 

Internal control ensures that financial transactions are conducted and reported accurately, resources are safeguarded against waste, fraud, and inefficiency, and operations are conducted effectively and efficiently. For government entities, robust internal controls are crucial to maintain public trust.