Question

What do Basic Financial Statement (BFS) contain? Discuss. How does one decide what entities to include in the government’s BFS? What bases of accounting are used in the BFS? Will long-term assets appear on the governmental funds balance sheet? Why?

Answer 1

Basic Financial Statements contain :

1) Balance Sheet : The balance sheet is the statement of Financial Position of a company on a particular date. The balance sheet includes assets, liabilities and equities on a particular date.

2) Statement of Profit and Loss : This statement shows the performance of the business for the reporting period. The statement includes all incomes, expenses and the profit or loss for the reporting period.

3) Statement of Cashflows : Presents the cash inflows and outflows that occurred during the reporting period

4) Statement of Changes in Equity : This statement presents changes in equity during the reporting period.

The government-wide financial statements consist of a statement of net assets and a statement of activities and are prepared using the economic resources measurement focus and the accrual basis of accounting. Thus, revenues are recognized in the accounting period in which they are earned and become measurable without regard to availability, and expenses are recognized in the period incurred, if measurable.

The governmental fund financial statements, report what is commonly referred to as current financial resources on a modified accrual basis. Whereas full accrual contains all inflows and outflows of economic resources, short- and long-lived assets, and short- and long-term liabilities, the governmental fund financial statements generally have a short-run perspective. Governmental fund assets generally are expected to be used or liquidated within a year and governmental fund liabilities are normally expected to be repaid or satisfied with current resources.Hence, long-term assets will not appear on government funds balance sheet.