Paper Example on Methods of Accounting

Introduction

Commercial accounting is explained as the processes of economic management where there is an evaluation of cost concerning expenditures and returns of business operations. Government accounting, on the other hand, is described as the process in financial reports from the government are recorded, analyzed, classified, interpreted and communicated. Its aim is control over resources in which operations are compartmentalization to ensure resources are clarified for use in various departments. The purpose of government accounting includes protecting the public treasury; promote effective financial management; and aide public accountability. The theory behind these systems, purposes, and standards lead to the underlying differences. This paper will present the similarities and differences that exist between these two methods of accounting. It will also examine types of financial statements prepared and information provided by these methods.

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The main purposes of government accounting and financial reporting is safeguarding and guiding how public money is utilized, and accountability is upheld. In the government's aim to perform this mandate, there arises some underlying variation to commercial accounting (Chan 2003). One of the differences is that government accounting is about budgeting and control while commercial accounting entails management of accounts to make a profit or the service of managers. There is real ownership in commercial accounting which results in the application of the accounting equation (assets=liabilities + owner's equity) (Chan 2003). This is not applicable to government accounting due to lack of ownership. It is very difficult to establish assets and liabilities of a government. Accounting principles enable the business to establish revenue due to the sale of goods and services which is not possible in government accounting since public goods and services are provided through taxation. Another difference is that government accounting is based on normative theory while the commercial accounting is founded on the development of positive theory (Chan 2003). It is also important to note that commercial accounting is based on cash or accrual methods while government accounting is based on modified accrual approach. Despite the differences, there is there is the similarity that in both systems, managers seek to negotiate for favorable contractual terms to hold the contract together.

In both accounting systems, financial statements are necessary to communicate the financial activities and conditions in a clear and concise manner. Both government accounting and commercial account systems use a recording of accounts use trial balances, and there is the preparation of periodic reports and statements. In commercial accounting, there is the preparation of profit and loss account and especially due to the availability of revenue incomes from the sale of goods and services and expenses (Chan 2003). This is not possible for the government accounting due to lack of direct revenue from the provision of public goods. In government accounts, the net outcomes of incomes and expenditures are presented. The statement of balancing account only shows the balance to describe whether the government will get or pay funds to others.

The presentation of financial statements means that information is organized and results are provided. The financial statements in these two accounting systems are different. In government accounting, the information provided includes transfers, receipts, and deposition of public funds (Chan 2003). The information provided by commercial accounting entails the results and financial position of the company which includes profits, loss, and equity among others.

Conclusion

In conclusion, the government accounting and commercial accounting have some underlying differences and similarities. The accounting information in government accounting is only provided on demand and no voluntary disclosure unlike in commercial accounting. It is also very difficult to classify assets in government accounting, and there is a lack of real owners. The government accounting is slowly adopting some principles of commercial accounting to improve reporting and accountability. It can, therefore, be said that there is the provision of more information in commercial accounts compared to government accounts.

References

Chan, J. (2003). Government Accounting: An Assessment of Theory, Purposes, and Standards. Public Money and Management, 23(1), 13-20. doi: 10.1111/1467-9302.00336