Accrual Accounting in Public Sector

In the present age, accounting seems to be an indispensable tool for modern business activities. However, not only for the profit orientated commercial business, it also plays an important role in the non-profit profit organizations, such as public sectors. Moreover, due to several deficiencies and drawbacks of government accounting and financial-management systems, such as unclear accountability, poorly maintained assets and hided losses and long-term liabilities, reforms in the public sector have been conducted over the last several decades across the word from New Zealand, Australia to England (Ball and et al, 1999). Accounting innovation by implementing accrual accounting in the public sector is one of the major part of the reforms and an important element of the wider concept of the so called New Public Management, and draws much of public concern and debate (Connolly and Hyndman, 2006). Under this background, this essay is going to discuss the implications arising from the process of implementing and actual using of accrual accounting in the public sector in several aspects, and try to put forward some possible solutions.

Generally, two main accounting methods are use to determine when and how to record income and expenses in the books, namely, cash accounting and accrual accounting. The major difference between these two is the timing of when the transactions are recorded in the account (Tudor and Mutiu, 2006). To be specific, under the cash accounting method, income and payment are not counted until cash is actually received or made; while under the accrual accounting basis, transactions are recorded as soon as they incurred, regardless whether the cash is received or made. Comparing to cash accounting, accruals accounting place more emphasis on how the capital assets used and recorded (Connolly and Hyndman, 2006). More reliable figures of performance based on revenues earned and resources consumed will be achieved through accruals accounting. Owning to