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Government accounting is a broad term that describes the specific accounting functions of public sector entities in the United States (US). Government accounting principles are used by federal, state, and local agencies that are in the public sector. Federal government entities generally follow the accounting principles or guidelines developed by the Federal Accounting Standards Advisory Council (FASAB). State and local governments may be required to follow accounting principles and guidelines developed by the Governmental Accounting Standards Board (GASB).
According to its website, FASAB was established in 1990 to develop accounting standards and principles specific to the U.S. government. FASAB works in conjunction with the Congressional Budget Office, the Secretary of the Treasury, the Director of the Office of the Management and Budget and the Comptroller General of the United States in the development of government accounting standards. These agencies can also help choose the board members who direct the specific accounting activities of FASAB.
GASB is an extension of the Financial Accounting Foundation (FAF) and the Financial Accounting Standards Board (FASB). The GASB is responsible for providing guidance to state and local government entities regarding the application of Generally Accepted Accounting Principles (GAAP). The GASB also attempts to improve the reporting capabilities of state and local entities with respect to material financial information. Providing guidance on audits of financial functions is another important part of government accounting.
Government accounting generally uses funds, budgets, appropriations, or levies when recording and reporting financial information. Fund accounting separates money received by government entities into separate accounts for use in government operations. These funds are usually tied to government projects such as infrastructure, maintenance, school services, utilities, or other miscellaneous government spending. Budgets are developed to help federal, state, and local government entities determine financial means for future time periods. These budgets are usually created from the previous year’s information. Government entities also try to project the money needed to pay for future services and determine if tax increases are needed to pay for these services.
Allocations occur when government entities set aside money specifically for certain purposes. These appropriations generally represent a specific use for funds received by a government entity. Once a government entity allocates money for a specific use, it is generally not allowed to change the allocation request.
Liens are specific uses for receipts collected by the government and typically occur before the government collects income or tax receipts from citizens. Governments typically use levies for business contracts, equipment purchases, payroll, or other items specifically necessary for the operation of the government entity.