What type of accounting is used by governmental and non-profit organizations?

Government or Fund Accounting is specifically designed to meet the unique needs of governmental and non-profit organizations. This type of accounting focuses on accountability and the proper management of funds rather than profit generation, which is more typical in private-sector businesses.

In government and non-profit contexts, it emphasizes tracking the use of resources allocated for specific purposes. Fund accounting segregates resources into categories (or funds) to ensure that the funds are used according to the restrictions placed by donors, grantors, or legislation. This approach enhances transparency and helps these organizations demonstrate that they are using their resources in compliance with laws and regulations.

This method is fundamentally different from other types of accounting like tax accounting, which focuses on tax obligations; managerial accounting, which is geared towards internal business management decisions; or statutory accounting, which applies to insurance companies primarily for financial statement preparation in compliance with regulatory requirements. Each of these serves distinct purposes that do not align with the mission and operational style of governmental and non-profit sectors.