Topic in Government Accounting: Selling Assets to Yourself t

Fund accounting and the modified accrual basis of accounting are the methods used in accounting for government operations. While they are very useful in that they more accurately reflect how governments function, they also can be used to facilitate some very unorthodox financing schemes.

Governments use the modified accrual method in accounting for revenues and expenditures. That is to say that they use a near cash basis of accounting that treats most cash inflows as if they were the equivalent of revenues. In addition in the interest of inter-period equity these revenues and expenditures must balance in each fiscal year. Fund accounting exacerbates the problem by allowing governments to transfer resources between funds, while treating them as revenues. Governments have taken advantage of these accounting peculiarities to develop some very creative means of balancing their budgets that at best accomplishes nothing and at worst succeeds in deferring the problem to future generations of taxpayers (with interest added of course). One

If the state was using the full accrual method of accounting this type of budget chicanery would not have worked. Under the full accrual method the state would not have been able to count the proceeds from the sale as income in the current period. After making all the entries, the financial statements would reflect an increase in cash with a corresponding increase in long term debt to reflect the loan. The entity would still have had a net loss for the period. However the peculiarities of fund accounting and the modified accrual method allowed and facilitated transactions such as this. Under the modified accrual method the state budget was able to show revenue of $200 million, in effect helping it to balance, while fund accounting allowed for the shifting of the responsibility for the loan and its interest payments to the UDC (an off-budget agency). The schemes were so successful that in 1992 the state planned additional transactions similar to this one to raise an additional $572 million. Also the state planned to transfer some sections of I-84 to the NY State Thruway Authority. In

Some topics in this essay:
Business Week, Budget Fund, Corporation UDC, Thruway Authority, accrual method, modified accrual, fund accounting, Governor Cuomo, modified accrual method, accrual method accounting, accounting government operations, business week 6, method accounting, week 6 1991, governments advantage, pp 114, revenues expenditures, principal bonds, week 6, 1991 pp,