Difference Between Public and Private Entity Accounting Research Paper

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Public Finance

Philosophy of public finance

All states must raise some sort of revenue to pay for the basic services it must offer to protect its citizens and provide them with needed services. The degree to which the state should act in such a supportive fashion may vary depending on the perspective of the individual but the notion that some state financing is needed for a nation to be functional is difficult to debate. Taxation is one of the primary methods through which the state extracts revenue. Although there are many different competing philosophies about the purpose of government financing, most would agree that the government can serve as an engine of growth if it allocates its assets in an appropriate manner.

One of the most influential texts defining a philosophy of public financing was that of Richard Musgrave's The Theory of Public Finance. Musgrave's (1959) text stressed that "normative goals of efficiency, equity and stable economic growth" should be the main purpose of government financing (Bartle, Scott, & Shields 2008: 3). Other theorists such as public choice theorists "denies the viewpoint that government is a benevolent despot that will act to correct market failures and make distributional judgments in an even-handed way" and reflect a distrust in the ability of the government to make rational choices about allocation (Bartle, Scott, & Shields 2008: 3). They stress the need to allow voters to choose how to allocate resources because of systemic inefficiencies.

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Other theorists note how bureaucracy can generate conflicts in making choices: "a budget director, agency head, and accounting director may all see a problem from different perspective as drawing from their theoretical frameworks" (Bartle, Scott, & Shields 2008: 7). However, most theorists still see equity and efficiency as ideal goals for public financing, even though they may have different ideas about how to achieve these goals.

Governmental accounting vs. non-governmental accounting

While government accounting is more concerned with adhering to a budget, non-government accounting for-profit entities is more concerned with accounting for profits and losses for shareholders. "The primary purpose of governments is to enhance or maintain the well-being of citizens by providing services in accordance with the public policy goals. Instead, for-profit businesses focus on wealth creation and interact primarily with those segments of society that help them fulfill their mission to generate a financial return on investment for their shareholders" ("GASB identifies key differences," 2006). Governments serve a wide variety of stakeholders; they also have the option of raising revenue through taxation and other non-voluntary sources. Governments, unlike private entities, cannot go bankrupt. Also, programs may….....

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