Question

In: Accounting

From your reading and research, do you think business type activities should be accounted for differently...

From your reading and research, do you think business type activities should be accounted for differently than governmental activities? Justify your answer.

HELP WITH HOMEWORK

ORIGINAL ANSWER, PLEASE

Solutions

Expert Solution

1. METHOD OF ACCOUNTING IS DIFFERENT IN COMMERCIAL ACCOUNTING AND GOVERNMENT ACCOUNTING. IN COMMERCIAL ACCOUNTING, ACCRUAL BASIS OF ACCOUNTING IS FOLLOWED IN ORDER TO FIND OUT THE RESULT OF THE OPERATION BY PREPARING PROFIT AND LOSS ACCOUNT AND TO ASCERTAIN THE FINANCIAL POSITION AT THE END OF THE YEAR BY PREPARING BALANCE SHEET. BUT, IN GOVERNMENT ACCOUNTING, CASH BASIS OF ACCOUNTING IS USUALLY FOLLOWED SINCE A GOVERNMENT /STATE HAS TO DECIDE UPON ITS RANGE OF ACTIVITIES AT FIRST AND THEN TO ASCERTAIN ITS VARIOUS SOURCES (VIZ. BORROWING, TAXATION ETC.). IN SHORT, A GOVERNMENT HAS TO ENSURE ITS SOURCES OF FINANCE AND THEN ITS APPLICATIONS.

2. THE SYSTEM ACCOUNTING IS ALSO DIFFERENT, IN COMMERCIAL ACCOUNTING, DOUBLE ENTRY SYSTEM OF BOOK KEEPING IS FOLLOWED FOR ITS PRACTICAL PUR­POSES. THAT IS, A PROFIT AND LOSS ACCOUNT IS PREPARED (BY TAKING UP ALL THE REVENUE INCOMES AND REVENUE EXPENSES) AND A BALANCE SHEET (BY TAKING UP THE RESULT OF THE CONCERN ALONG WITH THE PERSONAL AND REAL ACCOUNTS). BUT IN GOVERNMENT ACCOUNTING, SINGLE ENTRY SYSTEM OF ACCOUNTING IS USUALLY FOLLOWED. HE FOLLOWING TWO STATEMENTS ARE GENERALLY PREPARED, VIZ.: (I) GOVERNMENT ACCOUNT: (II) STATEMENT OF BALANCING ACCOUNT.

3. MAINTENANCE OF RECORDS ALSO DIFFERENT, IN COMMERCIAL ACCOUNTING A SEPARATE SET OF BOOKS-COSTING BOOKS-IS MAINTAINED IN ORDER TO FIND OUT THE COST OF PRODUCTION AND SALES TO FIX UP THE SELLING PRICE AFTER ADDING CERTAIN PERCENTAGE OF PROFIT AND ALSO TO SEE THE PROPER UTILIS ATION OF RESOURCES.

BUT IN GOVERNMENT ACCOUNTING, A BUDGET IS TO BE PREPARED (WHICH IS DULY PASSED BY THE PARLIA­MENT OR STATE LEGISLATURE) BY MAKING AN ESTIMATE OF EXPENDITURE TO BE INCURRED AND THE SOURCES OF FUNDS TO BE RAISED TO MEET THE SAID EXPENDITURES. FOR THIS PURPOSE, DIFFERENT CHARTS AND DIAGRAMS ARE TO BE PREPARED IN ORDER TO MAKE A PROPER COMPARISON OF EXPENDITURE AND INCOMES OF THE PAST YEARS.

4. CLASSIFICATION OF ACCOUNTING HEADS IS ALSO DIFFERENT, IN COMMERCIAL ACCOUNTING ACCOUNTS ARE REAL ACCOUNT, PERSONAL ACCOUNT AND NOMINAL ACCOUNT.

IN GOVERNMENT ACCOUNTING, THE CLASSIFICATIONS ARE QUITE DIFFERENT.

THEY ARE CLASSIFIED AS UNDER:

CONSOLIDATED FUNDS

CONTINGENCY FUNDS

PUBLIC ACCOUNTS.


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