. Internal users include government managers who need information concerning available resources and how the resources are being utilized. External users include taxpayers who need to know the expenditure of their tax. For-profit financial accounting refers to a business enterprise’s financial recordings and management while aiming at profit maximization. Examples of for-profit organizations include corporations, partnerships, and sole proprietorships. For-profit financial accounting focuses on bringing more revenues, unlike the amount spent mainly to benefit investors or owners. Financial accounting focuses on recording, analyzing, and reporting business financial transactions by preparing financial statements. Therefore, this discussion focuses on intensive and extensive distinctions between governmental accounting and for-profit financial accounting.

Research Questions

1. How do financial reporting of governmental accounting and for-profit financial accounting differ?
2. What are the objectives and importance of governmental accounting and for-profit financial accounting?
3. Discuss the type of accounting used by governmental accounting and for-profit financial accounting.

Financial Reporting

Transparency and Accountability

Financial reporting refers to the processes employed in documenting and communicating financial performance and activities after a particular period, typically yearly or quarterly. There is a significant difference between the financial reporting of governmental and for-profit financial accounting. The government must report its financial position and information to the public (Chychyla et al., 2019). Since governmental accounting focuses on public policy, its financial reporting must be transparent, and information offered to the public must be accountable. In contrast, for-profit financial accounting is profit-based; hence its financial reporting is meant for the future or current investors, lenders, business management, and owners. Also, it is not mandatory for for-profit financial accounting to report its financial information transparently because its focus is profiting the owner and shareholders (Chychyla et al., 2019). For this reason, for-profit financial accounting uses some accounting practices that may not be in the public’s best interest, like inflating revenue and hiding expenses.

Tools for Business Evaluation

Governmental accounting has a wider impact when compared to for-profit financial accounting. A governmental financial report may be used to evaluate residential relocation and the entire business to find out services offered to families and businesses. In this case, the focus is to determine the effectiveness of services provided by the government (Chychyla et al., 2019). These services include utilities like water, gas, electricity, and sewerage. Recreation facilities include playgrounds, entertainment, and swimming pools. Other services include education and security. Unlike governmental accounting, which evaluates government entities to assess services provided by the government, for-profit financial accounting evaluates businesses to find out relevant information concerning losses, expenses, gains, and revenues (Chychyla et al., 2019). This information is useful when assessing increasing assets and profitability that correlate with future dividends and return on investments to shareholders and owners. Also, evaluated information is relevant to investors and creditors when assessing the business.

Oversight of Resources Efficiency

Financial reporting of governmental accounting is used by oversight bodies, agencies, and other stakeholders in judging the overall financial condition of the government so that they inform the public about the position and well-being of governmental finances. During oversight, there is clear communication on whether the government is utilizing public resources effectively and efficiently in compliance with grants, contracts, or its budget (Chychyla et al., 2019). Oversight of financial reporting helps lenders determine the ability of the government to repay long-term and short-term debts. In contrast, there is no oversight of the efficiency of the resources in for-profit financial accounting, as their main aim is to make a profit benefiting the owner and shareholders.

Accounting Statements

The accounting statements for financial reporting by governmental accounting differ from for-profit financial accounting. Governmental accounting uses accrual-basis accounting statements which play a critical role in measuring the ability of the government to cover costs related to the payment of long-term services using the measurement focus of economic resource flows (Chychyla et al., 2019).