In: Accounting
Explain why governments use fund accounting.
Analyze the importance of budget and control of government resources.
Explain how the GASB revenue and expense recognition model may improve the usefulness of the information governments report to the public.
Answer:-
1st part - Governments use fund accounting because fund accounting used for recording the transactions which are limited by the donor, governing agency, authorities and other individuals and organizations. Generally, it is used by non-profit organizations, as we consider government also a non-profit organization. Therefore, they use it. Fund accounting emphasizes on accountability rather than profitability.
Government have many legal and fiscal constraints which they carry out with their various and different operations. They direct accountants for complete transparent about the use of funds and spend vs profit from them. Fund accounting gives rational response to serve as a reliable control technique for manage public money and discharge accountability.
Fund accounting consists of general ledger, grant and endowments.
2nd part- Importance of budget and control of government resources:- It is extremely important to have a budget so that income and expense can be monitored or government have a pre planned of their expenditure and income in upcoming year. Budget ensures economic stability and growth by proportioning appropriate funds to various sectors. Proper resources should be allocated by the government in the budget so that they are used in sustainable manner. Budget is also important because it mitigates economic divide by introducing public and economic welfare policies for the underprivileged sections of the society. This will not only help in good budget formation but resources of the government will be utilized in an effective manner.
3rd part- GASB revenue and expense recognition model may improve the usefulness of the information governments report to the public :- GASB stands for Government Accounting Standards Board issued for public feedback on revenue and expense recognization. The board added this project with the intent of developing guidance applicable to existing guidance is limited, improving existing guidance and considering inclusion of a performance obligation approach in the GASB.
The board introduces a new method for categorizing transactions which is used as basis for applying recognition proposals and determing the transaction category would be based on specific characteristics which will help to identify transactions with performance obligations.
The board needs stakeholders' feedaback on the potential benefits of the model before it begins to develop potential changes to the standards for future input.