Question

Discuss the main differences between business entities and government entities. How

do these differences impact the accounting methods that each of these types of entities

uses?

2. Describe the five types of government entities.

3. Explain why modified accrual accounting and the financial resources measurement focus

are appropriate methods for accounting for Governmental Type Funds.

4. Explain why accrual accounting and the economic resources measurement focus are

appropriate methods for Proprietary Funds and Fiduciary Funds.

Answer 1

DIfference between Government entities and Business Entities

“Government entites ” refers to the system and institution of governing and managing a certain society or country, while “business entity” is a systemic organization of providing industries, services, products, and profits to people.

Governments have a wider jurisdiction compared to businesses. Governments also have numerous agencies that cater to public services. The institution provides a sense of equality as well as national identity. On the other hand, businesses provide people with opportunities to earn and make money with their skills and talents.


A government’s head or leader is elected depending on the nature or form of government in a society, which is usually stated in the nation’s Constitution.

The head of a business is traditionally the owner or entrepreneur, unless another body dismisses the owner for various reasons.

Difference in Accounting methods:

A business gains profits by selling goods and services and making use of a market as its intended receivers (of goods and services). On the other hand, a government also earns profits implemented taxes imposed on eligible workers, businesses, and other various entities. Governments can also earn profits by imposing a transaction fee for a particular service in the various government agencies and offices. A government can also own businesses or corporations to increase its assets.