Unique Characteristics
Government accounting operates under a unique framework designed for public accountability rather than profit. This section introduces the foundational features that distinguish it from private sector practices. Explore these cards to understand the main pillars of public finance management.
Fund Accounting
Resources are segregated into separate self-balancing funds. This ensures that money is spent only for its intended purpose, like a dedicated fund for road maintenance or education.
Budgetary Control
The budget is a legal document. Financial systems are designed to prevent overspending and ensure all expenditures are legally authorized by the approved budget.
Absence of Profit Motive
Success is measured by the efficient delivery of services and adherence to public policy, not by generating profit. The focus is on stewardship of public resources.
Legal & Regulatory Compliance
Operations are strictly governed by laws, regulations, and statutes. Accounting practices must demonstrate compliance with these legal frameworks at all times.
Modified Accrual Basis
Many governmental funds use a mix of cash and accrual accounting. Revenues are recognized when available and measurable, while expenditures are recognized when liabilities are incurred.
Standard Setting Body (GASB)
The Governmental Accounting Standards Board (GASB) sets the Generally Accepted Accounting Principles (GAAP) for state and local governments in the U.S.
Government vs. Private Sector Accounting
While both sectors use accounting to track finances, their goals and methods differ significantly. This interactive chart highlights the key distinctions. Use the buttons below to toggle between different points of comparison and see how public service priorities shape financial reporting differently from corporate profit motives.
The Principles of Fund Accounting
Fund accounting is the bedrock of government financial management. It ensures that public money is tracked meticulously and used only for its designated purpose. Click on each of the three main fund categories below to see a detailed explanation of its role and structure.
Governmental Funds
Core public services
Proprietary Funds
Business-like activities
Fiduciary Funds
Acting as a trustee
Governmental Funds
These funds account for the general activities of a government that are financed by taxes and other general revenues. They focus on providing services to the public. Examples include the General Fund (for day-to-day operations), Special Revenue Funds (for specific sources like a gas tax), and Capital Projects Funds (for construction of infrastructure).
The Purpose of Government Accounting
Why does government accounting have so many unique rules? Its purpose extends far beyond just balancing the books. It is a system built to uphold public trust. Hover over the segments of the chart below to explore the primary objectives that drive this specialized field.
Public Accountability
This is the cornerstone. Government accounting exists to demonstrate to citizens, legislative bodies, and creditors that public funds are being managed responsibly and in accordance with the law. It answers the question: "What did you do with our money?"
Key Financial Statements
Governments produce several financial reports, but one of the most important is the government-wide Statement of Net Position. It provides a snapshot of the government's financial health. Click on each component of the equation below to understand its meaning and see examples.