PUBLIC SECTOR ACCOUNTING

CHAPTER ONE: INTRODUCTION TO GOVERNMENT ACCOUNTING

SYSTEMS

CONTENTS

a. Objectives
b. Introduction
c. Definition of terms
d. Government
e. Government Accounting Systems and Processes
d. Nature and Objectives of Government Accounting
f. Purpose of Public Sector Accounting
g. Users of Government Information
h. Users of Government Accounting Information
i. Comparison between public & private sectors
j. Differences between Government and Private Sector Accounting

1.0 LEARNING OBJECTIVES

At the end of this chapter, students would be able to: -

 Define and explain terminologies in Government Accounting.

 Identify the objectives of Government Accounting.

 Understand and appreciate the users of Government Accounting.

 Distinguish between the private and public sectors.

1.1 INTRODUCTION

Government has to do with a whole Nation. It is represented by

organisations that are established to use the resources of a Nation for the
upliftment and the welfare of its citizens.

For the skilful administration development of a Nation, there is the need

to institute financial and accounting systems in the established
organisations which are responsible for finances and human resources. In
the same way, such systems are to be introduced and nurtured in those
organisations that will be using the finances for such National
 development. The systems introduced should promote transparency, data
storage and retrieval, and accountability. Government organisations are
different from private sector establishments. Consequently, they have
different features, objectives and functions, which explain their methods
of information, and dissemination and stewardship accounting.

1.2 DEFINITION OF TERMS

1.2.1 GOVERNMENT

Government refers to the collection of public institutions established and

given the authority to run the affairs of a country. It is a system of
governance and includes the body of individuals who are authorised to
administer the laws of a Nation.

1.2.2 GOVERNMENT ACCOUNTING SYSTEM AND PROCESSES

Government Accounting refers to all the financial documents and records

of public institutions that relate to the collection of tax payers‟ money and
the analysis, control of expenditure, administration of trust funds,
management of government stores, all the financial responsibilities and
duties of the relevant organs. Government Accounting system is the way
of accountability through which the established institutions of the public
render stewardship on the revenue of the Nation and how it has been
disbursed.

Government accounting includes the process of recording, analysing,

classifying, summarising, communicating and interpreting financial
information about Government in aggregate and in details, recording all
transactions involving the receipt, transfer and disposition of public funds
and property. The processes of Government Accounting are further
discussed as follows:
(a) Recording

Recording involves the process of documenting the financial

transactions and activities in the necessary books of accounts are
cash book, ledger and vote book.

(b) Analysing

Analysing involves the process of separating transactions according to

their distinct nature, posting them under appropriate heads and sub-heads.
(c) Classifying

Classifying has to do with the grouping of the transactions into

revenue and expense descriptions and bringing them under major
classes as „Revenue Head‟ and „Sub-heads‟, with their relevant
code numbers of accounts.

(d) Summarising

Summarising concerns the bringing together of all the classes of

accounts and preparing them into reports periodically as statutorily
or organisationally required.

(e) Communicating

Communicating is about making available financial reports on all

the government financial activities from the necessary accounting
summaries to various interested parties. The style of
communication adopted should be unambiguous, lucid and devoid
of jargons as much as possible.

(f) Interpreting

Interpreting ends the process by giving explanations on what has

been reported in the various financial statements and reports, as
regards the overall operations and performance of the relevant
 government organisation(s). This is to enable the necessary
parties and users to take relevant decisions based on their
assessments of the reports.

1.3 NATURE AND OBJECTIVES OF GOVERNMENT ACCOUNTING

The objectives of Government accounting include the following:

(a) To fulfil legal requirement. The law requires that government accounts
are prepared and audited annually.

(b) To perform the stewardship function. The ruling government is the

steward of the resources and finances of the Nation. Government has to
give account of how these finances are used.
(c) To enable Government to plan well the future activities and programmes
of the Nation.

(d) To provide a process of controlling the use of the financial and other
resources.

(e) To provide the means by which actual performance may be compared

with the
target set.

(f) To evaluate the economy, efficiency and effectiveness with which

governance
is carried out.

1.4 PURPOSE OF PUBLIC SECTOR ACCOUNTING

The purposes of Public Sector Accounting include:

1. Demonstrating the proprietary of transactions and their conformity with the

law, established rules and regulations.

2. Measuring current performance.

3. Providing useful information for the efficient control and effective

management of government operations.
 4. Facilitating audit exercise to be carried out.

5. Planning future operations.

6. Appraising those in the authority, their efficiency and effectiveness

1.5 USERS OF GOVERNMENT ACCOUNTING INFORMATION

There are two groups of users of Government Accounting information.

These are „Internal‟ and External‟ users whose peculiarities and areas of
interests are briefly discussed, as follows:

1.5.1 Internal Users and Interest Areas:

This group of users includes:

The Labour Union in the public service which will press for improved
conditions of employment and security of tenure for their members.

Members of the Executive Arm of Government such as the

President, Ministers and Governors. Their interest areas are to
ensure probity and accountability through record keeping and
performance control which are achieved through accounting
information.

Top Management members such as Permanent Secretaries of

various Ministries and General Managers of Parastatals. They are
the conduit of accounting information generation, transmission
and serve as liaison officers between Government, employees and
the public.

1.5.2 External Users and Areas of Interest.

External Users include

Members of the Legislature at both National, State and Local

Government levels. Information in the accounts of Governments
is the major media through which politicians render stewardship to
 their constituencies and apprise them of the endeavours of
governance.

The Members of the Public, to demonstrate accountability and assist the

people to appreciate or otherwise the efforts of Governments.

Researchers and Financial Journalists. Researchers are

expected to develop new and better ideas of governance. Financial
journalists cherish accounting information to advise existing and
potential investors.

Financial Institutions, such as the Commercial Banks, World

Bank and International Monetary Fund (IMF). Accounting
information assists them to evaluate the credit rating of a
borrowing Nation.

Governments, apart from the ones reporting. Governments

collaborate on ideas of investment and research. They require
accounting information on the well-being or otherwise of each
other.
Suppliers and Contractors. Suppliers and contractors are eager
to ascertain the ability of a Government to pay for goods and
services delivered. Only Accounting information can be
revealing.

1.6 COMPARISONS BETWEEN PUBLIC AND PRIVATE SECTORS

The term “Public Sector” refers to all organisations which are created,
administered and financed by Government, from the tax payers‟ money,
on behalf of the members of the public. Such establishments which are
referred to as the “three tiers” Government Companies, Parastatals and
other public agencies created by the Nation‟s Constitution, Acts of
Parliament and Bye-Laws.
The organisations produce public goods and services which are available to the
citizens free or at very minimum charges. Public sector organisations are
managed by appointed members of the citizenry.

“Private Sector” is that part of the economy where the factors of production of
land, labour, capital and entrepreneurship are supplied by private
individuals who are the business owners. They manage the businesses,
beat the risks and earn the profits through the sale and production of
goods and services as sole traders, business partners or shareholders in
limited liability companies.

Public Sector organisations are content with pricing products or services at

marginal costs, thereby catering for the welfare of the public, privately
owned businesses venture to recover not only marginal costs but fixed
overheads and even earn profits. Public concerns do not distinguish
between capital and revenue expenditure, unlike private companies. The
latter write off the values of fixed overheads and even earn profits. Public
concerns do not distinguish between capital and revenue expenditure,
unlike private companies. The latter write off the values of fixed assets
over estimated useful lives through depreciation.

Public Sector organisations are accountable to the citizens of the Nation through their
elected representatives. Private Sector concerns are answerable to their owners.

1.6.1 DIFFERENCES BETWEEN GOVENMENT ACCOUNTING AND PRIVATE

SECTOR ACCOUNTING

These may be discussed as follows:

 In Government Accounting, tangible and fixed assets as buildings

and motor vehicles, are not shown in the Statement of Assets and
liabilities. They are written off immediately in the year of
purchase. Private Sector Accounting reflects fixed assets in the
balance sheet, displaying the historical cost, accumulated
depreciation and written down value of each.
 Government Accounting does not record stocks, debtors in the
balance sheet (Statement of Assets and liabilities), unlike Private
Sector Accounting which displays those items, and others such as
“sales‟‟, “cost of goods sold‟‟ and “carriage outward expenses‟‟
(in the trading and profit and loss accounts).

 Private Sector Accounting is peculiar to commercial undertakings

which have the maximisation of profit as their main objective.
Government Accounting focuses on the provision of adequate
welfare to the people with probity, accountability, legal and wise
spending in mind.
 Government Accounting adopts „cash basis‟ of accounting, as
against „accrual basis‟ of Private Sector Accounting.

 Government Accounting mostly uses the budgetary approach,

recording and classifying items of revenue and expenditure under
various „heads‟ and „subheads.‟ Although Private Sector
Accounting equally does budgeting and budgetary control, revenue
and expenditure matters are, recorded by their natural description,
such as „stationary‟ and „discount allowed.‟
 Government Accounting operates predominantly „fund
accounting‟ method in collating its data and information. Private
Sector Accounting uses the proprietary (or ownership) style which
discloses the nature and sources of the enterprise‟s finance or
capital structure, such as „ordinary share capital‟ or capital
structure, such as „ordinary share capital‟ and „preference share
capital.‟
 The legal basis of Government Accounting is the Nation‟s
Constitution and
Act of Parliament, unlike Private Sector Accounting which draws its
existence and strength from Companies Acts.
Purpose of Financial Statements

Financial statements are structured representations of the financial position and

economic performance of an entity.
 Specifically, the objectives of general purpose financial reporting in the
public sector should be to generate information useful for decision-
making, and demonstrate the accountability of an entity for the resources
entrusted to it, by providing statistics:

(a) on the sources, allocation and uses of financial resources;

(b) on how an entity financed its activities;

(c) for the valuation of the entity‟s ability to finance its activities and to settle
liabilities;
(d) for the measurement of an entity‟s performance in respect of the set goals.

(e) which will reveal whether or not an entity has acted within the approved
budget.

1.7 SUMMARY AND CONCLUSION

In this chapter, government accounting was discussed as a process which

involved the documentation of financial records. The process involves
the recording, analysing, classifying and summarising, communicating
and interpreting government‟s financial transactions. Moreover, the
objectives of government accounting were outlined enable to be
undertaken.

The differences between Public and Private Sector Accounting were

discussed. External and Internal users and interest areas of government
accounting information were highlighted.