Inventories Of Government Accounts Samples †MyAssignmenthelp.com

Question: Discuss about the Inventories Of Government Accounts. Answer: Introduction The topic deals with the inventories on the consumption basis of the government accounts. The consumption method under the generally acceptedaccounting Principles (GAAP) recognizes the assets when they are purchased and the expenses when they are consumed. The discussion has two parts the first part deals with balancing of the stock in hand in the year-end with the fund balance and in the second part consists of the method of disclosure debts services and the capital projects un the government wise statements. The reason why the accountants consider the year end inventories with the fund balance as non spendable when no comparable fund balance is required for cash, tax receivables or any other asset. The fund balance refers to the difference in the liability and the assets. It is positive when the assets are more and negative when the liabilities are more. Some parts of fund balance are reserved and the rest are unreserved. Whereas year- end inventory represents the balance of the stock in hand along with the difference of cost of goods sold and manufactured. The non-spendable is the fund balance of the recorded asset at the time of its purchase. The fund balance in many ways represents the working capital of the business. It can either be used as liquidity reserve or can be kept for future spending (Stewart, Hildreth Antwi-Boasiako, 2015) Balancing the inventory balance in end of the year with the fund balance, there will be a better understanding of the true fund balance. However, the non-spendable has to deal with a problem for representing the amount that cannot be set because of their current form that is the inventories and prepaid amounts; they are required to be maintained legally or contractually. The technique of accounting that the government should follow to report their capital projects and debt service activities in their government-wide statements. The Capital project contains the funds that report the contractually required financial resources that are for acquisition of capital assets. The total cost of capital project is accumulated in the single expenditure account and keeps on accumulating until the project is completed. These are short term in nature thus focusing specific projects. Debt service on the other hand are a part of the capital project that reports the expenditure for principal and interest on all general long term debts. Both debts services and capital projects must follow the modified accrual based accounting process except, in case of debt service principal and interest are not considered in the current liabilities until the period in which they are to be paid, although the interest revenue is held as accrued investments on bonds. The budgetary control over capital and debt projects is necessary in government accounting. This disclosure of these activities in the government-wide statement prevents over exhaustion of funds and the occurrence of unauthorized expenditures. The process will not influence the financial budget of the year, as the debt service fund and the capital project fund do not have any effect on the year-end statements. The budgets are prepared separately, without considering these funds. As long as the combined funds are included in the government funds, the debt service activities and the capital projects should be reported in the government- wide statements. For this, the expenses and revenues are to be recognized by the accrual concept (Ofoegbu, 2014). The method should report the long debt and long-term assets in net assets side of the government wide statements along with interest expenses reporting on activities. The general government fund financial statement should modify the full accrual method. In case of accrual basis, the inflow and outflow of economic resources, both long term and short-term assets and liabilities are contained. Whereas in modified accrual report that the government fund financial statement should follow must have a short run perspective. This is because the government fund assets are expected to be liquidated within a financial year and the liabilities are to be satisfied with the current resources only. Conclusion According to the discussion in the first part, in order to evaluate a true and fair fund balance it is necessary to balance it with the year-end inventory. The second part that discusses the method of disclosure of debt services and capital projects in the government wide statements, points out that accrual method should be followed in the process. References Ofoegbu, G. N. (2014). New Public Management and AccrualAccounting Basis for Transparency and Accountability in the Nigerian Public Sector.IOSR Journal of Business and Management,16(7), 104-113. Stewart, L. M., Hildreth, R. W., Antwi-Boasiako, K. B. (2015). The fund balance conundrum: An ethical perspective.Administration Society,47(8), 915-942.