Essay On Government and Non Profit Entity

This essay explores the accounting system of governmental entities and the differences between private and governmental accounting. It discusses topics such as ad valorem property taxes, encumbrances, extraordinary items, property assessment, taxable property, inter-fund loans, and nonexchange revenue. The essay emphasizes the importance of accounting standards and transparency in financial management.

Essay On government and Non Profit entity
Essay On government and Non Profit entity
Name of the Student
Roll NO
Subject Code

1ReferencesIntroductionEssay On government and Non Profit entity
Introduction
Accounting is a process of recording, analyzing, classifying, summarizing and
interpreting financial information. When this process is undertaken by the governmental entity it
is known as the accounting system of governmental entity. The difference in the accounting
system creates a difference between the accounting system of private and governmental entity. In
private sector the main goal is profit maximization where as the responsibility of the
governmental entity is fiscal accountability.
The aim of the governmental accounting is to carry out the financial work of the
governmental entity smoothly, efficiently and on time. They have to keep everything systematic
and accessible and in documentary form for audit purpose. The books of accounts are the source
for analyzing the performance, making important decision and for budgetary control. The
governmental entities have to keep the records as per the accounting standards of GAAP
(Barragato, 2019). Their books for account can be asked for analyzing the asset, liabilities,
expenditure and revenue by an important entity or government. In the United States the
governmental accounting system is prepared as per the accounting standards to be fair and have
full disclosure about the financial position and also the operations of the governmental entities
(Kaya,2016). Their accounting is based on the accrual or modified accrual system. US follows cash
and accrual concept in budgeting. GAAP for governmental entities are set by the Governmental
Accounting Standards Board, or as it is commonly called, the GASB. GASB is controlled by the
Financial Accounting Foundation (FAF), which is a not-for-profit organization. FASB and
GABS are same but structurally and economically FASB sets accounting principles that are used
by publicly traded companies (Rajib & Hoque, 2016).

2ReferencesIntroductionEssay On government and Non Profit entity
Ad valorem property taxes
The specific revenue like the property tax or sales tax are limited to debt service or
general long term debt. When the taxes are restricted for debt service it should be reported
directly as revenue in the debt service fund and not in the general fund. But at time according to
the legal requirement the restricted ad valorem property tax should be first reported to the
general fund. It can be said that accounting of the entire property tax should be in the general
fund and then it should be reported in the debt service fund making it easy to understand the
splitting the tax revenue into two funds. By reading the financial statement it can be clear how
much property tax revenue was recognized in the year. According to the accrual basis of
accounting the property tax are receivable at the fiscal year end and if not collected until more
than the sixty days after the year end are recoded as deffered revenue (McCluskey & Franzsen, 2017).
Encumbrances
An Encumbrance are those funds that are reserved when a purchase requisition is in
process and encumbered. The funds are placed aside when the requisition is processed. These
funds are not spent nor can it be used for other transaction. Encumbrance accounting benefits in
budget overspending. As a general planning tool it can used for predicting the cash flow (Smith,
2019).
The formula used to determine funds available is:
Funds Available = Budget - Actuals - Encumbrances
When the payment is done to the vendor, the encumbrance is reversed and the funds appear
under the Actual funds balance instead of as an Encumbrance balance. For example- I have a
budget of 10000 for consumable purchases and if I place a requisition for 1000 for consumable

3ReferencesIntroductionEssay On government and Non Profit entity
now I shall be applying the encumbrance system and this 1000 would be reserve out of 10000.
Now anyone putting a requisition for 2000 will only be allowed from the remaining 9000.
Extraordinary items
An extraordinary item is an event or transaction that is considered not normal and it does
not relate to ordinary company activities. They occur only once or twice and does not reoccurs.
The use of extra ordinary items has been eliminated under the GAAP. Use of extra ordinary item
is extremely rare case. write-offs, write-downs, gains, or losses are not treated as
extraordinary item under GAAP. Example of items that were considered as the extraordinary
items were destruction of facilities by an earthquake, or the destruction of a vineyard by a
hailstorm in a region where hailstorm damage was rare (Dai & Ngo, 2018). Item that damages
regularly like crop does not come under this item. To clarify to the readers of the financial
statement that there is a separate line items in the statement of extraordinary items with
disclosure of the nature of the items. Governmental entities are suppose to report all the
expense by function except the item that are special or extraordinary items. The entity needs
to report the direct expense for every action. A general expense are those direct or indirect
expense those are directly or indirectly associated with the operation of the company.
GASBS 42 points out that most of the impairment losses should come under permanent
unless there is any evidence that the impairment is not permanent. Examples of the
extraordinary items can be cost related to environmental disaster in a city due to factory fire.
A large legacy of demand of a private citizen from the small government. Sale of governmental
capital asset (Sargiacomo, 2015).
Property assessment

4ReferencesIntroductionEssay On government and Non Profit entity
Property assessment is a value that the governmental entity has designated for any
individual properties. This is the assess value that the property owner will and will be assessed.
Example of Assessed Value is that a company has its warehouse in its city. The city tax assessor
responsibility is to calculate the assessed value of the land and other things. And charge
according to the governmental income tax rates.
Taxable property
The property is under the governmental entity then it has to be reported according to
GAAP standards. The method of taxation is not particular under the entity. it should be method
that serve their need. under GAAP straight line method is used for recognizing evenly over the
life of the property. The collection of the property tax is reported in cash and in percentage (Stiglitz
& Rosengard, 2015). The tax collected is added to the current year total collection. The outstanding
balance of the property receivables is also reported in the in the books of account as cash and
also as the percentage. Governmental entities when taxing the real estate should include both the
assessed values and the estimated actual values according to the state jurisdictions (Howard, 2016).
Inter-fund loans
An inter fund loan is defined as the fund lending money to another fund. Accounting for
operating transfer is similar to the inert fund loan. They are posted to the same ledger accounts.
Loans are short term pr long term. A short term loan has a term of less than one year or one year.
Whereas the long term , loan has term longer than one year. The amount are accrued at the end
of the year when the interest earned on the scheduled loan for the long term payment of inert
fund loan. Inter-fund loans are not subject to cost allocation or fund distribution. It is important

5ReferencesIntroductionEssay On government and Non Profit entity
to use the object details to post the operating transfers and inert fund loans transaction (Bailey,
2018).
Nonexchange revenue
In a non exchange revenue transaction the government pay the value been when it has not
received same value in return. It is different from the exchange revenue where the same value is
given and received. When the government assess the transaction and it does not falls under the
exchange transaction that is termed as nonexchange transaction (Pontoppidan, 2018).
Included in this category are the following:
• Real estate taxes
• Fines and penalties
In a real estate taxes, the government assesses the tax. Under some measures, or may be
the assessed value of the property. In any exchange transaction there is not rise to revenue. When
one level of the government gives resources to a government that is at another level and the
resource should be used for the specific purpose there is a need for government grant in this type
of nonexchange transaction. These are the transaction resulting form te contract5ual or
legislative agreement. Under the accrual basis of accounting the revenue coming from the
nonexchange transaction are recognized in the period when the claim to enforceable legal claim
arise. As property tax represents the much important amount of the source of revenue from the
government entities. As per the modified accrual basis property taxes recorded should be
imposed as nonexchange revenue (Granof, 2106).
Conclusion

6ReferencesIntroductionEssay On government and Non Profit entity
The accounting standards are almost same for all entities. The difference comes in
reporting, and accrual basis accounting. Governmental entities are a vast group of enterprise.
They are very complicated so everything is segregated according to the development in the
accounting system. The terms define important topics that comes under GASB technical agenda.
It is important to keep the accounting standards updated. Accounting and its function that
includes the information system, audit, internal control, administration and expenditure
management ensures the best use of the resources. By ensuring legal and contractual compliance
the correct accounting can meet the socio-economic development. A fair and legal method of
accounting facilitates financial management, ensuring transparency and total accountability.
References
Bailey, D. (2018). Identifying and Examining Challenges to Fund Balance Management in
Union County, Illinois.
Barragato, C. A. (2019). The impact of accounting regulation on non-profit revenue
recognition. Journal of Applied Accounting Research.
Dai, L., & Ngo, P. T. (2018). Political uncertainty and accounting conservatism. Available at
SSRN 2196224.

7ReferencesIntroductionEssay On government and Non Profit entity
Granof, M. H., Khumawala, S. B., Calabrese, T. D., & Smith, D. L. (2016). Government and
Not-for-Profit Accounting, Binder Ready Version: Concepts and Practices. John Wiley &
Sons.
Howard, M., Pancak, K. A., & Shackelford, D. A. (2016). Taxes, investors, and managers:
Exploring the taxation of foreign investors in US REITs. The Journal of the American
Taxation Association, 38(2), 1-19.
Kaya, D., Kirsch, R. J., & Henselmann, K. (2016). The role of non-governmental organizations
(NGOs) as intermediaries of the European Union decision to adopt International
Accounting Standards: 1973–2002. Accounting Historians Journal, 43(2), 59-127.
McCluskey, W. J., & Franzsen, R. C. (2017). Land value taxation: An applied analysis.
Routledge.
Pontoppidan, C. A., Pessina, E. A., Biondi, Y., Bisogno, M., Alijarde, I. B., Caperchione, E., ...
& Hodges, R. (2018). Comments and suggestions IPSAS Consultation Paper for
Accounting for Revenue and Non-Exchange Expenses.
Rajib, M. S. U., & Hoque, M. (2016). A literature review on public sector accounting
research. The Jahangirnagar Journal of Business Studies, 5(1), 39-52.
Sargiacomo, M. (2015). Earthquakes, exceptional government and extraordinary
accounting. Accounting, Organizations and Society, 42, 67-89.
Smith, D. O. (2019). University Finances: Accounting and Budgeting Principles for Higher
Education. Johns Hopkins University Press.

8ReferencesIntroductionEssay On government and Non Profit entity
Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector: Fourth international
student edition. WW Norton & Company.