Government accounting developed as a way for parliaments to limit the power of kings by requiring approval of expenditures and taxes. It allowed legislatures to steer government behavior. The Governmental Accounting Standards Board established objectives for US governmental financial reporting to provide information to citizens, representatives, and creditors for political, social, and economic decision making and accountability assessments. Governments use fund accounting to segregate financial activities like daily operations, business-type activities, and funds held in trust into separate self-balancing accounts.
Government accounting developed as a way for parliaments to limit the power of kings by requiring approval of expenditures and taxes. It allowed legislatures to steer government behavior. The Governmental Accounting Standards Board established objectives for US governmental financial reporting to provide information to citizens, representatives, and creditors for political, social, and economic decision making and accountability assessments. Governments use fund accounting to segregate financial activities like daily operations, business-type activities, and funds held in trust into separate self-balancing accounts.
Government accounting developed as a way for parliaments to limit the power of kings by requiring approval of expenditures and taxes. It allowed legislatures to steer government behavior. The Governmental Accounting Standards Board established objectives for US governmental financial reporting to provide information to citizens, representatives, and creditors for political, social, and economic decision making and accountability assessments. Governments use fund accounting to segregate financial activities like daily operations, business-type activities, and funds held in trust into separate self-balancing accounts.
Government accounting has been viewed historically as a key
element in the movement from absolute power, (i.e., the
government or a king or emperor) to relative power (i.e., a shared model of government). Under the shared model of government, government accounting was used by a parliament to limit the king's power to (1) spend public money, (2) raise taxes to cover the expenditures, and (3) determine the purpose of the expenditure. The use of governmental accounting remained unchanged during the evolution into modern democratic systems. Thus government accounting requires the executive to (1) state the amount, nature, and purpose of the planned expenditure and the taxes needed to fund it, (2) ask for and obtain approval from the legislature, and (3) comply with the expenditure authority—appropriation—granted by the legislature and demonstrate such compliance. Under government accounting, the legislature is allowed to steer and control the behavior of the government. The basic foundation of governmental financial accounting and reporting in the United States was established by the Governmental Accounting Standards Boards (GASB) in its "Objectives of Financial Reporting," which stated that the purpose of financial reporting is to provide information to facilitate decision making by various groups (GASB, 1987). The groups were defined as (1) citizens of the governmental entity, (2) direct representatives of the citizens, such as legislatures and oversight bodies, and (3) investors, creditors, and others who are involved in the lending process. Although not specifically identified, intergovernmental agencies and other users have informational needs similar to the three primary user groups. While the three user groups have overlapping membership with corporate financial information users, citizens and legislative users are unique to governments. The use of governmental accounting information centers on political, social, and economic decisions in addition to determining the government's accountability. Accountability (GASB, 1987, 56-58) was identified as the paramount objective of governmental financial reporting because it is based on the transfer of responsibility for resources or actions from the citizens to some other party, such as the management of the governmental entity. The assessment of accountability is fulfilled when financial reporting enables financial data users to determine to what extent current-period costs are financed by current-period revenues. Two basic types of budgets are used by governments and are the same as those used by corporate entities—an annual operating budget and a capital budget. Governmental annual operating budgets include estimated revenues and appropriations for expenditure for a specific fiscal year. Capital budgets control the expenditures for construction projects and fixed asset acquisitions. Operating or capital budgets are recorded in the accounting system as a means of control or compliance. Many governmental entities are required by law to maintain a balanced budget in that revenues must equal or exceed appropriations; the latter situation results in a budgetary surplus. If a budgetary deficit occurs in a governmental entity with a balanced-budget requirement, additional appropriations must be enacted by the legislative process. Governmental accounting uses a fund accounting structure as a means of controlling resources. That is, each type of financial activity is segregated into a separate set of self-balancing asset, liability, and net asset accounts. GASB codification identifies three fund groups—governmental, proprietary, and fiduciary (GASB, 1999, Sections 1100.103 and 1100.105). Governmental funds are used to account for financial resources used in the day-to-day operations of the government. Proprietary funds are those used to account for the government's business-type activities where fees are charged for the services rendered, for example, utility services. Fiduciary funds are those used to account for funds held by the government in trust for others that cannot be used to support the government's programs, for example, an employee pension fund.