Government fund accounting explained

In fund accounting, the government creates separate fund accounts for several reasons. Therefore, there is a fund account for general government revenue and expenditure, one kept in trust, and those for government business activities in each MDAs. In this blog, we have discussed fiduciary, general and proprietary funds.

1. What's government fund

Government fund is a fund accounting type that is created to enter all government revenue, allocations, and spendings. In federalism, each government level has a fund accounting system. The federal, states, and (at time) local governments have a government fund accounting in place.

The fund records all taxes collected from citizens as revenue, as well as other income sources of the government are put in this basket. Also general government spendings such as the payment of salaries of government officials like the president and legislatures are paid from this basket.

A good example of a government fund is the consolidated revenue fund (CRF). This fund holds all allocations to the government as well as revenue from taxes, royalties, fees, and so on. Both federal and state governments in Nigeria have a CRF fund accounting system.

2. Accounting for government funds

The government fund applies the cash basis accounting system. Therefore, cash received as revenue for each month is recorded in the account and statutory spendings from the account are posted as the payments are made. It does account for revenue that is expected to be earned or government spendings that are anticipated to be incurred.

At the end of the period the government net fund position and changes in net fund position are prepared by the government accountant.

3. Importance of federal fund

Government funds, especially the one owned by the Federal government, is an important source to prove government transparency and accountability in governance. For example, the CRF shows the revenue earned by the government. It also shows the revenue allocation that goes into the account. Revenue allocations are usually published by the ministry of finance every month.

It also reveals how the federal government spends funds. The revenue and capital expenditure spendings including the payments made to judiciary, legislatures, and the executive arms of government. In Nigeria, it is probably that the federation fund is not transparent enough to enable citizens to know how their taxes are used.