Governmental accounting;

              Bulletin HASKINS & SELLS 67
Governmental Accounting
BY R. S. JOHNS, with Haskins & Sells
THERE is considerable difference of
opinion regarding the extent to which
the principles of accounting as applied in
the commercial field should be followed in
accounting for our various governmental
units. Some argue that the principles of
commercial practice should be applied to
governmental accounting without modifi­cation.
Others say the situation is differ­ent
entirely, that the problem must be
approached from a separate and distinct
point of view, and that it must be handled
in the light of the special characteristics
involved.
That there is a difference between com­mercial
accounting and governmental ac­counting
is quite evident when serious
consideration is given to the matter. True,
accounting for the operations of a govern­ment
rests on the fundamental principles
of double entry, just as the accounting for
nearly any other enterprise is based on these
principles; but the elements of accounting
which are stressed in commercial account­ing
change in their relative importance in
connection with governmental accounting.
Probably the most striking difference
between the operations of a government
and those of a commercial enterprise is the
fact that, while the aim of private business
is profits, governmental operations are
carried on without regard to profits. The
phenomenal growth in the use of the cor­porate
form of organization in business,
which has brought with it the idea of fixed
investment yielding a constant flow of in­come,
has caused considerable emphasis to
be placed upon certain features of corporate
accounting in the effort to compute profits
accurately and to prevent the impairment
of capital. The breaking up of business
operations into periods has necessitated
the allocation of income and expenses to
those periods, with the net result that con­siderable
stress has been placed upon the
proper treatment of such matters as depre­ciation,
prepaid and accrued items, signif­icance
of surplus, and upon the necessity
for statements drawn up with due regard
to the form and content thereof. In
governmental accounting, however, it is
doubtful whether some of these questions
are as important as in commercial account­ing.
A government is concerned principally
with rendering service to its people.
Revenues are raised in order to meet the
necessary expenditures for such service,
not to make a profit. Moreover, there is
no necessity for accounts representing
ownership, such as capital stock, partners'
capital, etc. The excess of assets over
liabilities is indicated by "surplus" ac­counts
which must be carefully dis­tinguished
to make certain that the unused
revenues which they represent are used for
their intended purposes. A commercial
concern generally is organized for a single
purpose, while a government usually per­forms
several distinct functions. Because
of the fact that a government is engaged
in these various services, and owing to
the requirements of the laws affecting the
raising of revenues and the authorization
of expenditures, transactions are recorded
by funds, that is, according to the several
functions to which they relate. Some of
the funds which may be present are the
general fund; funds for special purposes,
such as school fund, park fund, and high­way
improvement fund; trust funds; and
sinking funds.
Fund accounting has been adopted as
the procedure for recording transactions in
connection with government activities as a
means for safeguarding resources and
restricting and controlling expenditures.
The operations of each fund being distinct,
the funds should be separately accounted
for. Cash, receivables, vouchers payable,