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Governmental accounting
November 20, 2019
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.

Given 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.

A 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 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 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.

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Governmental Accounting 
Steven Bragg
Governmental Accounting
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