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Chapter Summary
1. Accounting difference between government, NPO’s and
Companies
2. Purpose of Government accounting
3. Understanding Budgets
4. Makeup of a Budget
5. Importance of Budget
6. Difference between Government and Non Profit
Organisation (NPO)
7. Financial Reports
8. Users of Financial Reports
9. Objectives of Financial Reporting
10. Accounting Bodies

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1. What are the main differences

between Accounting for
Government, Non Profit
Organisations and Commercial
Entities?

 Government and non profit entities do

i. Profit not operate to generate a profit
(Income less costs). However, there can
be net surplus after all costs are paid
for, deficit/surplus budgets.

ii. No direct link Business organisations are driven by

between Revenue revenue (profit) while NPOs and
and Expenditures Governments are driven by service
delivery. Increase in revenue (taxes or
(Matching Concept)
donations) may not increase expenditure
in NPO’s and Government while the
opposite is true for business/companies.

iii. Different Role for Unlike businesses, governments and NPOs

Capital Assets make significant investments in capital
assets that neither produce revenue or
reduce costs

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In contrasts with businesses,

NPOs and government funding is
iv. Restrictions on
for specific purposes and can not
Resources be used for other purposes that
have not been budgeted for.

v. No Distinct Ownership Unlike businesses, NPOs and

government cannot be sold or
Interest
transferred. If they are dissolved,
there are no stakeholders entitled to
receive the residual resources.

vi. Less Distinction For businesses, profit is the main

between Internal and measure of performance where gross
External Accounting profit margin reports, profit and loss
statements and balance sheets are
Reports
used by management to measure
Performance. Governments and NPOs
use achievement of distinct goals and
objectives as performance measure.

2. What is the purpose of Government

Accounting or Accounting for Non Profit
Organisations(NPOs)
 Accountability – Measure of government performance to
determine whether funds are spent on specific expenditure
programs as per the budget.

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3. What is a Budget?
 A budget is a money plan that outlines how funds are
spent.
 National Budget – Government (PNG) annual money
plan prepared by the Department of Treasury
outlining how the funds will be allocated for the new
financial year. An annual Budget is approved by
Parliament before implementation.
 Every organisation (churches, NPO’s, companies etc…)
develops its own budget depending on its activities.

4. What is the makeup of a

budget?
 A budget is represented by a listing of revenue/income
and expenses/expenditure.
 Revenue/Income – Cash inflows into the organisation
such as tax revenue (Govt), donations(NPO), sales
(Businesses)
 Expenditure - Cash outflows from the organisation,
(what funds are spent on). Example, salary and wages,
telephone, electricity, repair and maintenance etc
This listing of all the accounts is called a chart of
accounts.

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5. Importance of Budgets in
Accounting and Financial Reporting
 Guides department heads and managers in monitoring
actual expenditure to budgets,
 Enables government/organisations to track expenditure to
funding availability
 Provides audit trail on expenditure for accountability
purposes
 Government services are equally distributed and captured
in the budget annually.
 Government budget is governed by law and is a
fundamental tool used by government to plan and deliver
much needed services for its people.
 NPOs use budgets as a key tool to plan and coordinate their
activities in terms of their objectives and priorities.

6. Difference between Government

and Non Profit Organisation
 Unlike NPOs, government has authority to command
resources such as impose tax, license, tariffs and rates
by legislation (law).

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7. Financial Reports
Financial reports basically refers to the income
What are financial and expenditure statement/(Gov’t/NPOs) or
reports? Statement of Profit and Loss and Balance Sheet
of a business entity.

What are financial Government and NPOs use the financial

Statements for the following reasons;
reports used for? i) Assess financial position and economic
condition (Balance sheet analysis)
ii) Compare actual results with budget
(Income/Expenditure analysis)
iii) Compliance with laws, standards,
regulations
iv) Evaluate efficiency and effectiveness

8. Users of financial reports

Government
Boards

Citizens &
Investors and
Organizational
creditors
members

Donors and Regulatory

Grantors Agencies

Employees
other
Constituents

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9. Objectives of financial reporting

 The overall objective of financial reporting is to meet the
information needs of a report user. Because of different user
demands, Government Accounting Standards Board (GASB) has
outlined ACCOUNTABILITY as the main pillar of public
financial reporting. There are three main categories;

1) Interperiod Financial reports should provide information to

determine whether current year revenue were sufficient to
equity pay for current year services

2) Budgetary and Financial reporting should demonstrate whether

resources were obtained and used in accordance with
Fiscal Compliance budget and set guidelines.

3) Service efforts, Costs Financial reports should provide information to

assist users in assessing the service efforts, costs and
and Accomplishments accomplishments of government

10. Accounting Bodies

Government Accounting A board establishment by the USA
Government to coordinate and streamline
Standards Board (GASB) government accounting and reporting standards. The
objectives of the board is outlined in Table 1-2 (pg 10)

Financial Accounting A board establishment by the USA

Government to coordinate and streamline
Standards Board (FASB) NPOs accounting and reporting standards. The objectives
of the board is outlined in Table 1-3 (pg 12)

Papua New Guinea Accountants A board establishment by the PNG Government (Enacted
Registration Board (PNGARB) by law) to coordinate and regulate the accounting
profession and Practice including standardizing reporting
standards.

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Certified Practicing
Accountants PNG
(CPAPNG)
Public Government Accounting
System (PGAS) or Public Finance
Management System (PFMS)
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A Private Association establishment under the
association incorporation act. The membership is made
up of professional accountants in employment or in
practice. The association amongst other things ensures
that accountants are upskilled to international levels
through completion of accounting modules and other
relevant training materials such as the International
Financial Accounting Standards (IFRS), International
Auditing Standards (IAS) .
PGAS - PNG Government Computerized
Accounting System used by all Government
Departments prior to 2012
PFMS – New PNG Government Computerized
Accounting System used by all Government
Departments prior to introduced in 2013 to
2017.