Accounting methods for public sector entities (2024)

Our paper is focused on the analysis of the basic accounting methods for public sector entities. In order to ensure not only financial consistency but also compliance with the performance indicators of budgetary institution and its financial results, these accounting systems and financial reporting require from budgetary institutions to report their full financial situation (including their accumulation of assets and liabilities) and to assess all costs of their activity, including asset utilization. They are divided into four main types: i) cash basis of accounting; ii) modified cash basis of accounting; iii) modified accrual basis of accounting; and iv) full accrual basis of accounting. Indicated methods determine the conditions, the fulfillment of which requires the recognition of income from transactions or events for financial reporting purposes. The most popular method is the modified accrual basis of accounting. However, the most accurate one is the full accrual basis of accounting. This method recognizes transactions and events at the moment of their actual recognition regardless of the time of cash payments or receipts. The accounting system of budget performance, which is introduced today in Ukraine, involves using a modified accrual method. However, if in the world practice modified accrual method is shown by the deviation costs (consumption of inventories is recognized in the period of their purchase), but in the domestic technique of accounting there is a distortion of information about the income from financing operations (by the recognition of revenue from such transactions on a cash basis). Current accounting practice in Ukraine requires reformation to eliminate such distortions of performance of the financial and economic activity of public sector entities. The paper provides authors’ opinions for the solution of this problem.

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