Introduction
There are two boards that make up the Generally Accepted Accounting Principles board (GAAP). The Government Accounting Standards Board (GASB) and the Financial Accounting Standards Board (FASB) make up the Generally Accepted Accounting Principles board. The government accounting standard board is widely used by the state and other government agencies. On the other hand, Financial Accounting Standards Board is generally used by the private sector.
The government’s uses the GASB method as it seeks to account for how they have spent the taxpayers’ money. FASB statements help the shareholders and creditors of a business make informed decisions. These two accounting systems have similarities and differences in their practices. This has made comparing the financial statements of publicly owned organizations from privately organizations harder and more complex.
Differences and similarities between FASB and GASB
Cash flow statement
This is a statement that shows the movement of cash into and outside the organization. The GASB categorizes the cash flow into four categories. This includes, financing activities, operating related activities, non capital and capital financing activities. The FASB divides the cash flow into three categories. Financing, operating and investing related activities. When determining cash flow the FASB accounting system uses both direct and direct methods. The GASB on the other hand uses the direct methods to determine cash flow.
Balance sheet
This is a statement that shows the financial position of the business. Accounting procedure of the GASB system requires that current liabilities be clearly distinguished from non-current liabilities. Current assets should also be clearly distinguished from non-current assets. The FASB recognizes the use of the above accounting practice in determining the financial position of the business but does not require the use of the method in determining the financial position of the business.
Activities statement
The two systems of accounting use different names for their statements. GASB uses the following titles for their statements, statement of revenue, changes in net assets and statement of expenses. On the other hand, FASB uses the title of statement of activities.
Difference between modified accrual accounting and full accrual accounting
The main difference between modified accrual and full accrual accounting is basically the time when expenditures and revenues are acknowledged.
Full accrual accounting is mainly used by governments. It makes use of cash basis accounting and accrual basis accounting. This accounting method recognizes revenue when it is available and at the same time measurable. Full accrual accounting avails accurate information to the organization that can be used to help in future planning of the activities of the business.
Modified accrual accounting uses different terms as compared to full accrual accounting. Modified accrual accounting is useful to an organization as it provides the full costs of operations. This is because the modified accrual accounting avails information regarding the assets and liabilities of an organization.
Conclusion
It is important to know the difference between GASB and FASB accounting systems. An organization should adapt the most suitable accounting system that will help address the needs of the organization. As an accountant, the knowledge of FASB and GASB is important as it help differentiate the financial records of private and public companies. It is also important to either employ the full accrual accounting system or modified accrual accounting system. It will help the organization determine its assets and liabilities.
References
Breitner, L. P., & Anthony, R. N. (2010).Essentials of accounting. Boston: Prentice Hall.
Copley, P. A., & Engstrom, J. H. (2007).Essentials of accounting for governmental and not-for-profit organizations. Boston, Mass.: McGraw-Hill.
Granof, M. H., & Khumawala, S. B. (2011). Government and not-for-profit accounting: concepts and practices. Hoboken, NJ: John Wiley & Sons.