Reconciliation of the Government Wide Financial Statement With the Fund Statements

Government accounting is substantially different from other accounting formats, and at the same time the two methods are essentially alike. Accounting for any entity involves, on the most basic level, balancing expenditures and revenues. However, government accounting has one major departure from standard accounting statements: it mush be reconciled with a budget set up in advance by a governing body, like the city council, state legislature, or, in the federal realm, Congress. This difference does not, however, make the basic precepts of governmental accounting significantly different from other types of accounting.

A government accounting statement must track all cash flows, both expected and realized, for an entity that is comprised of possibly hundreds of relatively autonomous entities. Each of these smaller entities has separate budgets, accounts, and in many ways operates independently of the larger entity, such as the state or city. Despite this individuality, a comprehensive report on the status of the government budget -- a CAFR -- must be compiled and balanced to ensure that the government entity as a whole is operating within its prescribed budget and any discrepancies may be resolved.

A very broad example of this is in Georgia's listing of Internal Service Funds. (Georgia CAFR 2004) Bear in mind that this is simply a listing of one category of funds encompassed by the state of Georgia; this one heading encompasses funds for administrative services for state agencies, building authority funds for maintenance and purchase of state property, risk management fund that manages worker's compensation, unemployment compensation, and various insurance policies held by the state, among others. (GA CAFR 2004, p.107-108) The state's general balance sheet lists fifteen separate funds in addition to the assets and expenditures for general government operation. (ibid., p. 24)

One complication in government accounting comes from trying to balance each of these individual funds while still maintaining the balance of the entity (the state, in this case) as a whole. It is, after all, the most important duty of a state to balance its entire budget, not to focus too narrowly on one single fund; for example, a surplus in one individual fund can balance out increased expenditures in another, otherwise, additional debt service may be necessary to balance the financial statement as a whole.

An even more specific example of these balancing maneuvers is shown on page 42, the "Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances," which outlines why some amounts reported are different in the Statement of Activities; eight separate reasons behind the discrepancies are listed. (GA CAFR 2004) One specific instance of a difference in a fund statement with the general Statement of Activities is that "inventories accounted for using the purchases method are reported in the government funds. [However,] in the Statement of Net Assets, such amounts are reported as assets until the inventory is consumed." (GA CAFR 2004, p. 42) Different accounting methods and reporting mechanisms among different funds, which operate to a great extent independently of one another and of general fund oversight, result in a need for a reconciliation in a comprehensive statement such as that of the state as a whole.