Back to basics: an overview of governmental accounting and financial reporting: everyone involved in overseeing or managing government operations needs to understand the basics of public-sector accounting and financial reporting.

Author:Genito, Michael
Position:Best Practices
 
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All those involved in the oversight or management of government operations, and those whose livelihoods and interests rely on the finances of state and local governments, need to have a clear understanding of governmental accounting, auditing, and financial reporting, which are based on a sound set of principles and interrelated practices and procedures.

ACCOUNTING

The term "accounting" is used to describe the process of assembling, analyzing, classifying and recording data that is relevant to transactions and events affecting the government's finances.

Assembling involves gathering together purchase orders, invoices, billing statements, notices, receipts, receiving slips, closing documents, bank statements, correspondence, and other documents that support a transaction. These documents must then be analyzed so someone unfamiliar with the transaction can understand who and what was involved; when, where and why the transaction or event took place; and the value to be assigned to it.

Using a comprehensive chart of accounts, the government can then properly classify the components of the transaction or event and, finally, record it as journal entries. The effect on each account, in turn, is then posted to the general ledger, which contains a list of balances for each of the accounts found in the chart of accounts.

FINANCIAL REPORTING

"Accounting" and "financial reporting" are similar but distinctly different terms that are often used together. Financial reporting is the process of aggregating and summarizing the detailed information that was assembled, analyzed, classified, and recorded in the accounting process, and putting it into a usable form for decision making by those who need it.

Financial reporting can take one of three forms: internal financial reporting, special-purpose external financial reporting, and general-purpose external financial reporting. Internal financial reporting is developed for management to meet specific managerial needs and preferences, with management determining the content, format, and timing of the reports. Special purpose external financial reporting is developed for the use of those outside the government to meet certain legal or contractual requirements, such as state regulatory agency or grantor requirements.

General purpose external financial reporting is developed for those who rely on the information contained in the reports and do not have direct access to the jurisdiction's financial information. General purpose external financial reporting typically is governed by generally accepted accounting principles. Three communications methods (1) are used to present information in general purpose external financial reporting: display...

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