Concept introduction
The key part of a business is the government. The governmental funds are termed as the general funds. Accounting and financial reporting becomes more important with increasing economy. There are two types of financial organizations in this category, governmental and not-for-profit entities. Budgeting helps to obtain optimal resource allocations to those entities and manage them efficiently.
The way financial measurement focus and the economic resources measurement focus differ. The impact of these two focuses on the presentation of financial information. The reason that the addition of reporting under the economic resources focus provide added value to the understating of operation of government.
Explanation of Solution
Consider the following transactions.
Salaries paid, $20,000.
For a governmental organization using the flow of the financial measurement focus, the salary is accounted as the expenditure. The entry of salary in journal is as follows.
Date | A/C Title | Post Ref. | Debit | Credit |
Expenditure | $20,000 | |||
Cash | $20,000 | |||
To record the payment of the salaries |
In case of government side statement using the flow of economic measure focus, the salary is accounted as the expense and the
Date | A/C Title | Post Ref. | Debit | Credit |
Salary Expense | $20,000 | |||
Cash | $20,000 | |||
To record the payment of the salaries |
The fundamental difference between both the focuses is that the financial resource measurement focus, only discuss the cash or asset that are expected to be converted to cash within the accounting period or in a specific period near the accounting period.
While the progress of economic resource measurement focus discusses all the assets that are accessible to the organization, not only in cash form but soon to be in cash asset as well.
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Chapter 15 Solutions
Advanced Accounting
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