Question

What are the five main differences between a Income statement that is produced by a for-profit company versus a local government Statements of Revenue, Expenditures and Changes in Fund Balances?

Answer 1

Differences between the income statement of a profit company and the statenent of Revenue, Expenditures and Changes in fund balances of a government :

1. The Statement of Revenue,Expenditure & changes in fund balances hereinafter referred to as a gov. Statement is a statement to keep a track on the flow of resources out of and in the fund. It includes mainly all the funds from the Balance sheet only. While when we prepare an income statement, mostly nominal accounts are included and other real accounts come under Balance sheet.

2. Government mainly focuses on serving people and maintaining their territory while a company mainly focuses on its return on its investments. So, a major part in collection of revenue of government are taxes, fees, fines & penalties,etc. While for a company it is sales from the goods and services they supply. Society is under an obligation to pay taxes.

3. In gov. Statement, expenditures are distinguished between current and capital, also Debt services while under income statements for profit co. only current i.e. Revenue expenses are considered depending on the materiality of items.

4. There is a separate heading under gov statement namely other financing resources wherein for instance all details of funds received from bonds issued, bonds redeemed amount etc are all considered. But under income stement for a profit company these are considered under balance sheet and cash flow statement.

5. Both include extraordinary and special items as well but the range is a bit wider in the government statement. For instance, Gov. Statements may also include under special items, sale proceeds of capital asset while under a profit company it will just include profit or loss from such sale. The government statement of revenue, expenditure and change in fund balances is basically like a cash flow statement which determines how the funds were used throughout a particular period. While Income statement for profit company derives profit generated for a particular period.

6.At the end, the ending fund balance arrived at is matched with the Total Fund Balance in the balance sheet under the Gov. Statement.