Our paper is focused on the analysis of the basic accounting methods for public sector entities. In order to ensure not only financial consistency but also compliance with the performance indicators of budgetary institution and its financial results, these accounting systems and financial reporting require from budgetary institutions to report their full financial situation (including their accumulation of assets and liabilities) and to assess all costs of their activity, including asset utilization. They are divided into four main types: i) cash basis of accounting; ii) modified cash basis of accounting; iii) modified accrual basis of accounting; and iv) full accrual basis of accounting. Indicated methods determine the conditions, the fulfillment of which requires the recognition of income from transactions or events for financial reporting purposes. The most popular method is the modified accrual basis of accounting. However, the most accurate one is the full accrual basis of accounting. This method recognizes transactions and events at the moment of their actual recognition regardless of the time of cash payments or receipts. The accounting system of budget performance, which is introduced today in Ukraine, involves using a modified accrual method. However, if in the world practice modified accrual method is shown by the deviation costs (consumption of inventories is recognized in the period of their purchase), but in the domestic technique of accounting there is a distortion of information about the income from financing operations (by the recognition of revenue from such transactions on a cash basis). Current accounting practice in Ukraine requires reformation to eliminate such distortions of performance of the financial and economic activity of public sector entities. The paper provides authors’ opinions for the solution of this problem.
History
Published in
Czech Journal of Social Sciences, Business and Economics
Publisher
Univerzitni Servis / Prague Business School & University Service Publishing
Publisher statement
This paper was published in the journal Czech Journal of Social Sciences, Business and Economics. The journal was an open-access journal. The journal has ceased publication.
Acceptance date
2017-10-31
Publication date
2017-12-31
Depositor
Dr Oksana Adamyk. Deposit date: 8 September 2023
FAQs
The most popular method is the modified accrual basis of accounting. However, the most accurate one is the full accrual basis of accounting. This method recognizes transactions and events at the moment of their actual recognition regardless of the time of cash payments or receipts.
What accounting method do public companies use? ›
How to choose the right accounting method for your business. For most businesses with investors or lenders, the decision is easy. You may have to follow GAAP rules and use accrual-basis accounting for both tax and financial reporting. (The same is true for publicly traded companies.)
What are the public sector accounting systems? ›
Public sector accounting is the system of accounting that involves recording and maintenance of books of accounts by the government authorities on their financial performance. There are three categories of organisations normally working in any environment: public, private and non-profit concerns.
What are the methods of governmental accounting? ›
State and local governments use two accounting methods to record transactions, modified accrual and accrual methods. Governmental funds use the modified accrual basis of accounting, with a current financial resources focus.
What are the three major components of public sector accounting? ›
The main purposes of Public Sector Accounting are: (a) Ascertaining the legitimacy of transactions and their compliance with the established norms, regulations and statutes. (b) Providing evidence of stewardship. (c) Assisting planning and control.
What type of accounting do public companies use? ›
The generally accepted accounting principles (GAAP) are a set of accounting rules, standards, and procedures issued and frequently revised by the Financial Accounting Standards Board (FASB). Public companies in the U.S. must follow GAAP when their accountants compile their financial statements.
What are the basis of accounting in the public sector? ›
these public sector accounting bases include the following: Cash Basis. Accrual Basis. Budgetary / Appropriation Basis.
What are the basics of public accounting? ›
Public accounting involves reviewing a client's financial documents for accuracy and completeness before the documents are disclosed to the public. Private accountants review their client's internal business documents and work with financial managers to plan budgets and evaluate fiscal performance.
What is the role of accounting in the public sector? ›
The accounting officer prepares the departmental budget (specified in terms of measurable objectives) for the Minister or MEC to approve and present to the legislature for voting. The accounting officer is then responsible for implementing and managing the budget.
What are the methods of accounting method? ›
There are two primary methods of accounting— cash method and accrual method. The alternative bookkeeping method is a modified accrual method, which is a combination of the two primary methods.
Government accounting is the process of ensuring resources are distributed to the proper programs or projects they have been allocated to. They do this by using fund accounting and following the generally accepted accounting principles (GAAP).
Why is government accounting different? ›
Some of the key differences include: The purpose of government, which is to provide services to the citizenry, not to make a profit. The users of a government's financial reports which are citizens, their elected representatives, oversight bodies, and creditors.
Which method of accounting must be used by publicly traded companies? ›
Companies can use the accrual accounting method or the cash method when preparing their financial statements; however, if a company is public, it must use the accrual accounting method as specified by GAAP.
What are the big four in public accounting? ›
The “Big 4” is a term used to reference the four largest accounting firms: Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC).
What is the public accounting sector? ›
What is public accounting? Public accounting refers to a business or individual who helps a range of clients, from individuals to corporations, prepare financial documents. Certified public accountants, or CPAs, act as a third party to review the financials of a company for public disclosure.
