What Is Government Accounting?

View all blog posts under Accountancy | View all blog posts under News and Articles

An accountant seated at a desk uses a calculator and laptop. In 2022, the U.S. government spent a total of $6.3 trillion, while state governments collectively spent $2.9 trillion.

With figures of that magnitude, it’s imperative that government agencies spend tax dollars responsibly. As with a business, accounting is key to running agencies efficiently, helping them achieve their goals while staying within their budgets.

However, government accounting has significant differences from accounting for a business. Understanding what government accounting is and how it differs from other forms of accounting is essential for those who may be interested in this career. An advanced degree in accounting can help students gain the expertise to understand and work in this branch of accounting.

How Does Government Accounting Work?

Government accounting is the recording and management of all financial transactions carried out by a government at any level: local, state or federal. Its purpose is to track revenue, from sources such as taxes, and expenditures on public services and goods. That primary purpose encompasses several activities.

Fund Accounting Systems

Within a government office, government accountants categorize all expenses into discrete accounts. They set up accounts, track the inflow and outflow of money, and ensure that expenditures don’t exceed budgeted amounts. Over time, they maintain and update those accounting systems.

Financial Management

By analyzing data, government accountants can help governments make decisions about how to manage their finances. For example, accountants can point out when revenue isn’t sufficient to meet expenditures, requiring either budget cuts or new revenue sources.

Legal Compliance

Government accounting ensures that financial management follows applicable laws. It also sees to it that accounting policies and financial statements follow generally accepted accounting principles (GAAP).

Auditing

Each fiscal year, government accountants are responsible for conducting independent audits of agencies. Audits double-check that records are accurate, budgets have been adhered to and all public funds are accounted for.

Forensic Accounting

If auditing uncovers evidence of possible financial crimes, forensic accountants step in. Forensic accounting uses analytic techniques, such as identifying assets and tracing funds, to identify and document crimes like fraud and embezzlement.

Accountability

By publishing financial records, government accounting helps to hold public officials accountable to the public. Accountability promotes confidence in government while pointing out problems that need correction.

The Rules of Government Accounting

The rules of government accounting parallel the rules of financial accounting for businesses. Like financial accounting standards, the goal of government accounting standards is to create consistency so that the financial statements of different government entities can be compared with one another.

They also promote transparency so that readers such as public officials and taxpayers can access and understand relevant information. However, government accounting also has unique rules.

Short-Term Balance Sheets

Unlike balance sheets for private companies, balance sheets for government bodies don’t include long-term assets or liabilities. They focus on whether a government agency has sufficient assets to pay its liabilities within the current fiscal year. That focus helps ensure that agencies allocate their finances to meet their program and service goals.

Modified Accrual

In financial accounting, accrual accounting means recording revenues and expenses at the time they’re incurred rather than when money is actually received or paid.

Government accounting uses modified accrual accounting, a more restrictive form of accrual accounting. It records revenues and expenses only when they’re expected to be received or paid in the near future.

Revenues and Expenses

In line with its focus on short-term financial resources, government accounting records revenues when they meet two standards:

They’ll become available for paying liabilities within 60 days, such as when tax revenue is expected.
The amount of the revenue can be reasonably estimated.

Government accounting records expenses when they’re incurred. Unlike regular accounting though, an agency expects to pay them within the current fiscal year.

Government Accounting vs. Other Forms of Accounting

Although government accounting has many parallels to other forms, it has basic differences as well. To understand what government accounting is, it’s helpful to compare it to financial accounting to illuminate key differences.

Standard-Setting Bodies

For public and private companies, an independent nonprofit called the Financial Accounting Standards Board (FASB) sets GAAP standards. For governments, by contrast, two bodies set GAAP standards:

Governmental Accounting Standards Board (GASB) for state and local governments
Federal Accounting Standards Advisory Board (FASAB) for the federal government

Stakeholders

For private companies, the stakeholders for information in financial reports are stockholders, creditors and investors.

In government accounting, the stakeholders are the general public and public officials.

Organizational Goals

Financial accounting standards are for businesses: organizations whose goal is to generate revenue by selling products or services. Ultimately, those standards aim to increase revenues and profits and enhance trust among investors.

Government accounting is for bodies whose goal is to provide programs and services for the public. They get most of their revenue from the public through taxation. Their accounting standards promote trust among members of the general public rather than private investors.

Types of Expenses

Financial accounting recognizes certain types of assets and liabilities over periods of several years, such as capital expenditures and depreciation. Those sorts of items are absent from government accounting, which recognizes items in a single fiscal year.

Explore a Unique Accounting Career Path

Effective government accounting is important for both efficient government operations and public trust. A program like the University of Nevada, Reno’s online Master of Accountancy (MAcc) can equip students with the knowledge and skills to pursue a career in government, public or private accounting.

The curriculum combines preparation for the CPA exam with the technical skills that employers seek, with the convenience of coursework that’s fully online. Learn more about how the University of Nevada, Reno can help you pursue your professional goals in accounting.