Identify and describe one of the five environmental differences between governments and for-profit business enterprises as identified in the Governmental Accounting Standards Board's Why Governmental Accounting and Financial Reporting Is-and Should Be-Different.
Wednesday, January 16, 2013
Chapter 1 - governmental accounting differences
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Potential for longevity: Governments almost never go out of business because they are allowed to tax as a source of funds, creating a long term view of operations. Not-for-profit organizations are more focused on the short term recovery of their amounts invested, and worried where their next investment will come from.
ReplyDeleteAn important fundamental difference between government and for-profit business enterprises include the organizational purpose of each. The existence of government is for the well-being of citizens; this is done through public services. Government accounting is detailed and far more information has to be reported. A for-profit enterprise is in business to create a profit and report information to the stakeholders of the company. Stakeholders differ in government and for-profit businesses.
ReplyDeleteAnother difference between government and for-profit business enterprises is sources of revenue. For-profit revenue includes net income from offering services or products. Government revenue revolves around taxation of businesses and individuals.
Relationships with stakeholders are different; private shareholders of a company are more likely to hold managers accountable for their interests, whereas the taxpayers are much more likely to be indifferent to how their money is being spent.
ReplyDeleteRole of the Budget-In a for-profit business, a budget is prepared for planning purposes and are typically not shown to creditors or investors. On the other hand, government budgets reflect public policies and prevent officials from exceeding their budget limit.
ReplyDeleteAnother important difference between governments and for-profit business enterprises is the"role of the budget". If for-profit business enterprises keeps its budget planning for internal use only, government's budget planning is the opposite. It's kept available to the public. More importantly, it has to align with the public policy. No officials can spend money on their own interest but within the budget planning. Also, there is an up-rising trend that government financial report shows the comparison of budgeted and actual spending.
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