Public Budgeting 1 Public Budgeting Introduction Public finance comprises any revenues or expenditures passing through state budgets, derived from whatever source and however spent. Public finance has to be accounted for within governmental budgets for it to qualify as public finance (Bailey, 2003). This paper will discuss the concept of public finance and its philosophy. There is a comparison of governmental accounting and nongovernmental accounting, and an explanation of the relationship between budgeting and financial reporting in government.
Philosophy of Public Finance Public finance allows for communities to function effectively and for the needs of the people within each community to be met. This requires an extensive application of financial planning, scrutiny by multiple entities and reporting that displays the realistic methods that were used in meeting public needs. The philosophy of public finance is based on raising funds for public purposes (Gaffney, 2008). Gaffney (2008) said there are three aspects on the basis of which public finance functions.
These are as follows: * On the basis of different activities in which public sectors are nvolved and the way of their organization such as revenues and expenditures. * Anticipation and realization of the results of different governmental activities, * On the basis of assessment of alternative policies. Public Budgeting 2 Contrast Governmental Accounting with Nongovernmental Accounting Governmental and nongovernmental accounting is different for very good reasons.
The driving force for governmental financial reporting is accountability. Accountability to citizens and taxpayers, legislative and oversight bodies, and holders of government debt. Governmental accounting is based on the accounting methods f public sector, and nongovernmental accounting is based on the accounting methods of private sector. Governmental accounting system focuses on the course of financial resources, while nongovernmental accounting system focuses on the course of economic resources.
Governmental accounting system has a goal of balancing the resources in context of the social welfare. Nongovernmental accounting system has a goal of generating profit. Organizations, which perform their operation under governmental accounting, have the goal to achieve financial accountability. On the other hand, organizations, which perform their operation under nongovernmental ccounting, conduct their operation to achieve effective fiscal plans (Government Budgeting and Accounting, 2008).
Relationship between Budgeting and Financial Reporting Both budgeting and financial reporting are important constituents of the accounting system in the public sector. Financial reporting refers to an effort related to assessment of financial performance of the government. Budgeting and financial reporting assists in decision making regarding the financial aspects of an government in financial management for fulfilling the rules and regulations of public inance as well as the increasing requirements for services with limited resources of revenues.