Encyclopedia of Business and Finance, 2nd ed. These reports are the standard that citizens, oversight bodies, and other stakeholders use to judge their government's efficiency, effectiveness, and overall financial condition.
But they shouldn't be. Governments and nonprofits take our tax and contribution money to provide valuable services—shouldn't we be making sure that they're making good use of our money? In this article we'll examine the different financial statements for these nonbusinesses organizations NBOs and teach you how to read them so you'll always be sure where your money is going.
Government and nonprofit organizations aren't interested in making money, so they use an accounting system called fund accounting. Fund accounting essentially groups financial data together into funds or accounts that share a similar purpose. This way, the organization has a better idea of what resources it has available to complete a specific task.
Fund accounting is typically not a topic enjoyed by people who are used to the concepts of for-profit accounting.
Nevertheless, understanding what fund accounting is, and how it works, is the only way to confidently look at the financial publications that governmental and nonprofit organizations publish each year.
Government and Profit Governments treat our money in a distinctive way—they're not trying to make a profit.
Ideally, a government wants expenditures to be very close to revenue in any given year. Differences between revenues and expenditures are called surpluses a positive difference or deficits a negative difference.
Don't forget, though, that a surplus is not a profit, nor is a deficit a loss—governments aren't in the business of hoarding money nor are they "in business" at all, as it were.
Unlike a for-profit company, if a government finds itself operating at a large surplus profitit will usually take steps to lower the tax burden for its residents.
In the broadest terms, there are three major classifications of funds in a government. Used by the government to provide services whose expenditures aren't met by the fees that are charged for those services. Used to account for "business-type" activities, where the services are completely paid for by charges to the customer e.
Used to account for funds held in the interest of a third party. These aren't reported in governmentwide financial statements, since they're not government owned assets e.
Governmental Reporting Each year, every governmental organization in the U. Start Reading The Fine Print. CAFRs often present financial information for individual funds or at least significant funds as well as governmentwide financial statements that show the position of the government as a whole.
Governments present their consolidated financial statements in the CAFR.Financial reporting provides decision makers with financial information they need to make informed decisions and is the responsibility of the administrator of the public funds.
While many investors have at least some understanding of typical financial statements like the balance sheet, income statement and cash flow statement, governmental and nonprofit financial. Accounting & Financial Reporting.
Governmental accounting and financial reporting standards help stakeholders assess how public resources were acquired and how resources are or will be spent. Government Finance Review Articles. Federal Outlook. A Little Education Isn't a Dangerous Thing.
Governmental financial reporting objectives are influenced by the characteristics of the state and local governmental operating environment and by the needs of those who use governmental financial . Collecting and reporting additional financial information required by the governmentwide statements add to the complexity of financial reporting activities and have significant implications for the traditional focus and basis of accounting used in governmental financial statements.
As such, governments adhere to a different set of financial reporting and accounting standards. Governmental accounting and financial reporting standards help stakeholders assess how public resources were acquired and how resources are .