Government Accounting

 GOVERNMENT
Government refers to the collection of public institutions established and given the authority to run
the affairs of a country. It is a system of governance and includes the body of individuals who are
authorized to administer the laws of a Nation.

 GOVERNMENT ACCOUNTING SYSTEM AND PROCESSES

Government Accounting refers to all the financial documents and records of public institutions
that relate to the collection of tax payers’ money, and the analysis, control of expenditure,
administration of trust funds, management of government stores and all the financial
responsibilities and duties of the relevant organs. Government accounting system is the way of
accountability through which the established institutions of the public render stewardship on the
revenue of the Nation and how it has been disbursed.
Government accounting includes the process of recording, analyzing, classifying, summarizing,
communicating and interpreting financial information about Government in aggregate and in
details, recording all transactions involving the receipt, transfer and disposition of public funds
and property. The processes of Government Accounting are further discussed as follows:

(a) Recording
Recording involves the process of documenting the financial transactions and activities in the
necessary books of accounts are cash book, ledger and vote book.

(b) Analyzing
Analyzing involves the process of separating transactions according to their distinct nature and
posting them under appropriate heads and sub-heads.

(c) Classifying
Classifying has to do with the grouping of the transactions into revenue and expense descriptions
and bringing them under major classes as „Revenue Head‟ and „Sub-heads‟, with their relevant
code numbers of accounts.

(d) Summarizing
Summarizing concerns the bringing together of all the classes of accounts and preparing them into
reports periodically as are statutorily or organizationally required.

(e) Communicating
Communicating is about making available financial reports on all the government financial
activities from the necessary accounting summaries to various interested parties. The style of
communication adopted should be un-ambiguous, lucid and devoid of jargons as much as possible.

(f) Interpreting
Interpreting ends the process by giving explanations on what has been reported in the various
financial statements and reports, as regards the overall operations and performance of the relevant
government organization(s). This is to enable the necessary parties and users to take relevant
decisions based on their assessments of the reports.

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 NATURE AND OBJECTIVES OF GOVERNMENT ACCOUNTING

The objectives of Government accounting include the following:
a) To fulfil legal requirement. The law requires that government accounts are prepared
and audited annually.
b) To perform the stewardship function. The ruling government is the steward of the
resources and finances of the Nation. Government has to give account of how these
finances are used.
c) To enable Government to plan well the future activities and programs of the Nation.
d) To provide a process of controlling the use of the financial and other resources.
e) To provide the means by which actual performance may be compared with the target
set.
f) To evaluate the economy, efficiency and effectiveness with which governance is
carried out.

 FEATURES OF GOVERNMENT ACCOUNTING

Government accounting is a branch of accounting that records the revenue and expenditure of
government institutions. It is used by government offices. It is different from commercial
accounting which is used by other forms of organizations and business firms.
The following are the main features of government accounting:
1. Maintain Law and Order
Since government is a public institution, its main objective is to maintain law and order in the
country. Therefore, the accounting system used by an institution is not supposed to reveal its profit
and loss, but to reveal how public funds and properties have been used for that purpose.
2. Government Regulations
Government accounting is maintained according to government rules and regulations. The
financial policies, rules and regulations determine system of government accounting.
3. Double Entry System
Government accounting is based on the principles and assumptions of double entry system of book
keeping. Accordingly, every government financial transactions are recorded showing their double
effects. One aspect of the transaction is debited and the other aspect is credited for each
government financial transaction.
4. Budget Heads
All the expenses of government offices are classified into different budget heads and expenditures
are made only on approved budget heads.
5. Budgetary Control
Government accounting facilitates budgetary control. No government office can make expenditure
more than the allocated budget amount.
6. Banking Transaction
Another feature of government accounting is that, all government transactions are supposed to be
performed through banks.
7. Auditing
The concerned department of the government must audit the books of accounts maintained by
government office so as to avoid misuse and misappropriation of public funds.

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 ASPECTS OF SIMILARITY AND DISPARITY BETWEEN THE GOVERNMENTAL

ACCOUNTING AND THE PROFIT-GENERATED CORPORATIONS

There are some aspects of similarity between the governmental accounting and the profit
generated corporations. They are shown as follows:

1. Both of them use the concept of the double-entry system.

2. Both of them are recorded in journal and posted to the ledger and the subsidiary ledger.
The scientific accounting style in forming accounting structure does not differ from the
governmental accounting about the commercial accounting. Recording is done in
documents of the general journal and it is posted to ledgers or the subsidiary ledgers. In
addition, results are extracted in budget and the final accounts.

3. They prepare the balances of the daily and monthly audit.

4. Both of them share the same accounting names as expenses for furniture, cars and lands.
All the accounting terms in the governmental or the commercial accounting like revenues,
expenses and cash accounts.

5. The accounting unit in the governmental body similar to that of the accounting unit in the
commercial accounting. Both of them are parts of the economic entity. They use money in
exchange and revenues. The financial systems are similar in both of them. Likewise, both
of them use a cost system similar to the purpose of getting unit cost or the rendered service.

6. Both of them agree on the concept of the one-year periodical unit of calculating the
business results. This period may differ in the governmental accounting and the
commercial accounting in accordance with the circumstances of each sector and the state
itself. However, both of them agree that the period aspect is often a year.

7. Both of them use money as a calculating unit used in both the governmental accounting
and the commercial accounting. In both of them, the calculating unit is cash as a means
either in the items of the double-entry books or in the final results.

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There are several differences between the governmental and the profit-generating
institutions. They will be shown as follows:

1. The governmental accounting does not seek profits while the sole goal for the financial one
is to make profit as much as possible.

2. The commercial accounting has assets and liabilities. On the other hand, the governmental
accounting has revenues and expenses. Moreover, the assets are treated statistically in
records. It has no relationship with the accounting cycle.

3. The governmental accounting is related to the state- developed plan. On the other hand, the
commercial accounting is related to the main goal of the institution and activity.

4. The governmental accounting is regulated by laws, rules, regulations and directives from
the government. They are issued from the finance ministry and the planning ministry. On
the other hand, the commercial accounting is regulated by the trade practices, principles
and the prevailing accounting rules.

5. The governmental accounting is committed to expenses within the limits of the funds on
the level of kinds, parts and articles. These limits should not be followed without getting
the necessary approvals.

6. The governmental accounting is developed as a result from the increasing importance of

control system. That is to say, it is developed as a result of the trade practices and principles
as well as the general rules in the financial accounting. Moreover, it results from the
development of the accounting thought in applying these principles and finding new
principles governing the accounting relationships in practice.

7. In the commercial accounting, asset depreciations are accumulated to replace an asset for
another after it is depleted. On the other hand, in the governmental accounting, it is for
buying an asset, there should be an allotted credit for buying this asset. Likewise, there is
no annual accumulation for this asset depreciation.

8. Credits in the governmental accounting do not allow spending these credits without firmly
established laws and directives for the processes of expenses on the condition that the
allotted credits should not transcend these laws. In the ledger, the credited amounts should
be placed for every expense of the governmental expenses. On the other hand, in the
commercial accounting, the exchange limit is not determined by defined credits. The
exchange operations are governed by internal rules in the facility keeping up with its goal
and internal plan.

9. The commercial accounting represents assets and liabilities in its balance sheet graded
according to its liquidity. There are fixed assets and circulating ones and fixed liabilities
and circulating ones. The reminder between the circulating assets and the circulating
liabilities expresses public capital in a corporation. The governmental accounting is closer
to the public capital in a facility than in assets and liabilities. It faces a main interest for
cash represented in fund or bank in a lesser degree than stock and much lesser degree than

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assets of the governmental body. They are registered in statistic records unrelated to the
accounting operations for the governmental accounting.

10. Expenses in the commercial accounting represent the necessary sacrifices to make
revenues. The difference between revenue and expense is the profit of facility. On the other
hand, in the governmental accounting, expenses represent obligation on the credits of the
governmental body should be spent according to rules, directives and the regulations
regulating the expanse process.

11. The reason for submitting and investing money in the commercial accounting is to make
the utmost profit for achieving economic and social welfare as much as possible for the
individuals of the society regardless of getting back the cost of this service or part of it or
vice versa.

12. The sources of revenues in the commercial accounting usually arise from the contributing
partners in corporations or from shares in the limited companies or bonds and loans.
The money sources in the governmental body come out from tax, loans, credits and aids.
The revenue sources in the trade corporations limited in capital, bonds or loans. However,
money sources in the governmental institutions are limitless. They can be increased
through the increase of taxes or depletion of the state sources of oil, iron, mines or aids
from the other nations. The state has an ability to increase revenues according to its
expenses. This ability does not exist in commercial corporations. The state can afford part
of expenses to citizens as returned charges like returning part of expenses afforded by the
state for the sake of saving this service like the fees of issuing licenses.

13. The units produced by trade corporations are controlled by the supply -and- demand
market. Moreover, they have many players in the market from the other trade corporations
producing the same product. This leads to the rise of competition to satisfy the consumers.
In addition, this leads to exerting more effort to better the product launched in market.
However, services performed by the government have no competitor. There is no
corporation or any other institution that perform the same service in a better way for the
consumer. In this case, a control is necessary in many institutions in view of the monopoly
of services rendered by the state. Further, there should be a kind of laws, regulations and
instructions as well as ways of control either before spending or after it in many places
outside the governmental body to be sure of applying regulations, laws and instructions on
these bodies. This is other than the profit generating institutions regulated by internal
regulations of their own.

14. In the commercial financial accounting, money is considered to be part of assets in facility.
Moreover, it is not independent from the constituents of the project assets and reports. It
represents a single accounting entity. On the other hand, in the governmental accounting,
money does not represent part of assets. Acquiring this money is from several sources and
not from one source.

15. The budget is different in the governmental accounting from the financial accounting. In
the governmental accounting, expenses and revenues of the budget represent the laws of
the approval of the legislative body. Similarly, revenues and expenses of the budget can be
easily made as they are based on an accurate study. Moreover, they can be prepared as a
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means of planning and controlling the performance evaluation. However, it does not have
the quality of obligation as in the governmental accounting in view of its obligatory law.
Likewise, its achievement in a degree lesser than the ability of governmental accounting.

16. In the governmental accounting, calculating performance in the governmental programs

aims at achieving service for citizens in a better way and at the least cost. The performance
measure greatly contributes to improving the services offered to citizens. On the other
hand, in the governmental accounting, performance assessment aims to achieve the greatest
profit for the institution. Likewise, in the governmental accounting, performance
assessment is related to the allotted credits for this performance. On the other hand, in the
commercial accounting, performance assessment is connected with achieving the greatest
flows for the institution. Therefore, it is related to the increase of revenues and profits and
not performance.

17. Taxes may be imposed on the profits of the commercial units. Therefore, its accounting
system should be a means of displaying the volume of profits during a year so that taxes
can be imposed on profits according to the prevailing taxation laws. On the other hand, the
governmental bodies are exempted from taxes. This is because its accounts are subject to
control over money and not for knowing the profit volume. Unlike the commercial facility,
the goal of the governmental bodies is to offer the services of citizens and not making the
greatest profits.

18. The commercial units assess its historical values as present and marketing values or by
using the standardized numbers. This is for knowing the real value for the profit quantity
achieved for the commercial facility. This is due to the fact that the historical values do not
give the real picture for the facility profits. However, the governmental institutions do not
aim at making a profit. Therefore, the historical value keeps up with the goals in achieving
the best services to a society. The historical measure keeps up with that of income in the
governmental institutions. On the other hand, the historical measure in the commercial
corporations does not reflect the real picture of the income of the facility.

19. In the commercial facility, there are auditors who oversee the sums before expending in
accounting units. Similarly, book checks and results are supervised by chartered
accountants outside the accounting unit in exchange for fees fixed by the facility for these
accounting offices. In addition, its balance sheet represented in final accounts in trade
ministry and banks are not accepted unless they are credited by an outside chartered
accountant. On the other hand, finance ministry is only responsible for controlling expenses
in governmental bodies. Further, it is responsible for preparing the annual budgets and
extracting the final accounts that controlling the expenses to verify its correctness.
Moreover, the accounting department, the Central Accounting Office and finance ministry
are responsible along with the institution for extracting accounting results represented in
the final accounts for the facility. In addition, they are responsible for preparing the
financial budget annually according to rules and instructions issued by the finance ministry
in this regard. The directives in the form of obligatory laws and rules issued by the cabinet
to regulate the financial matters.

20. In the commercial accounting, revenues are assessed during budgeting the estimated
budgets. Then, expenses are evaluated in next stage in light of assessing revenues. On the
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other hand, the governmental accounting expenses are evaluated first. On the other hand,
revenues are conducted by different means to cover the expenses in view of state
sovereignty through which the required money is conducted to cover the expenses.

21. The governmental units are under restrictions and conditions that define how to bring
revenues and how to conduct expenses. The assigned credits in budgets are not spent
without directives defining the ways of expenses. The commercial accounting does not
comply with defined restrictions from creditors and shareholders. The project managers
are free to conduct its resources without any restrictions imposed by aid owners, creditors
and shareholders.