Financial Accounting Notes

Government or Public sector Accounting

Public sector accounting, also referred to as government accounting, refers to all the financial documents and records of public institutions that relate to the collection of government revenue and their analysis, the control of expenditure, the administration of trust funds, the management of government stores and all the financial responsibilities and duties of the relevant government institution and departments.



It refers to the collection of public institution established and given the authority to run the affairs of the country. Government has to do with the whole nation and is represented by organizations that are established to use the resources that belong to the whole nation for this general administration of a country and for the welfare of the citizens.

Government accounting processes

It is defined in another broad way to involve the  process of recording, analyzing, classifying, summarizing and interpreting financial information about government in aggregate and in details, reflecting all transactions involving the receipt, transfer and disposition of government funds and properties.

Government accounting system

It is the system of accountability through which the established institutions of the public report on the available revenues of the nation and how these revenues are used.

Self-accounting unit

It is a ministry or extra-ministerial department which has full control over all its accounting records. It is a unit that keeps both above-and below-the-line records completely. This unit does not forward voucher, but keep them and only give the total amount of money.

Examples of self-accounting units are:

  • Ministry of finance
  • Ministry of works
  • Ministry of education
  • Office of the Auditor general of the federation

Sub-self-accounting units

It is a unit that keeps an incomplete record of above-and below-the-line record with an approval to spend money. A sub-self-accounting unit performs the same functions as those of a self-accounting unit. An example of a sub-self-accounting unit is the federal pay office located in each of the states of the federation.

Non-self-accounting unit

It is a unit that keeps an incomplete record of above-the-line and complete record of the below-the-line. The unit only prepares the vouchers, whereas the payment must be made by the sub-treasury because it had no central pay office. A non-self-accounting unit is a ministry or extra-ministerial department which has no control whatsoever over any of its accounting records. An example of such a unit is the Code of Conduct Bureau in a state.

Below-the-line account

It is account credited and controlled by the accountant general of the federation. The expenditure under this account is not budgeted for in the annual estimate and as such the exact amount of income receivable as well as expenditure incurable cannot reasonably be ascertained.

Above-the-line account

It is the expenditure budgeted for in the amount of income receivable as well as expenditure incurable and reasonably are ascertained, for example, personnel cost, annual running cost and other overheads.

Purpose of Public-Sector Accounting

  • To ascertain the propriety of transaction and their conformity with established rules.
  • To show evidence of financial accountability.
  • It serves as a basis for planning.
  • It serves as a basis for controlling.
  • It serves as a basis for decision making.
  • It serves as a basis for appraisal of performance.
  • To show sources of government revenue and the resultant expenditure.
  • Providing the details of outstanding long-term commitments and financial obligations.

Division of Public Sector Accounting

Public sector accounting is mainly carrying out its activities through

Users of public sector accounting information can be categorized into the following two categories:

  1. Internal user
  2. External user

The internal users are made up of the following:

  • The executives such as the president of the federal republic of Nigeria, the governors of the states and chairman of the local government councils and their advisers.
  • The federal ministers and state commissioner
  • Top administrator of government departments
  • The general manager and chief executives of Parastatals

The following are the external users:

  • The national assembly
  • The members of public
  • Government, apart from the one that is rendering the report
  • Foreign countries
  • Foreign financial institution such as IMF and World Bank
  • Creditors, both local and foreign
  • Researchers and media men
  • Political parties, trade unions and civil liberty organisation
  • Regional grouping such as ECOWAS, EEC, etc.
  • The public account committee (PAC)

Legal Basis of Government Accounting/Public Sector Accounting

The following are the rules and regulations governing the operation of public sector accounting:

  • The 1999 constitution of federal republic of Nigeria
  • Finance (control and management) Act CAP A15 LFN 2004
  • Audit Act of 1956 (as amended)
  • Appropriation Act (budget estimate)
  • The Financial Regulation of December 2006
  • Treasury and finance circular
  • Treasury accounting manual

Sources of Government Revenue

The federal government derived its revenue from different sources among which are as follows:

  • Head 1 – Indirect taxes
  • Head 2 – Direct taxes
  • Head 3 – Mining (oil)
  • Head 6 – Direct allocation
  • Head 7 – Direct taxes (PAYE)
  • Head 8 – License and internal revenue
  • Head 9 – Mining (solid minerals)
  • Head 10 – Fees
  • Head 11 – Earning and sales
  • Head 12 – Rent of government property
  • Head 13 – Interest and repayment (general)
  • Head 14 – Interest and repayment (state government)
  • Head 15 – Reimbursement
  • Head 16 – Armed forces
  • Head 17 – Miscellaneous

Head 1 – Indirect Taxes

These are taxes where the burden of payment is borne by the consumers of goods and services. Examples of these taxes includes Value Added Tax (VAT) custom and excise duties, such as import duties, export duties, excise duties, tariffs and other forms of indirect taxes.

Head 2 – Direct Taxes

These are taxes where the burden of payment is borne by the tax payer directly. It includes company income tax (CIT), petroleum profit tax (PPT), capital transfer tax and pay as you earn (PAYE).

Head 3 – Mining (Oil)

This relates to mining of oil and gas revenue, it includes

  • Sales of crude oil for domestic consumption
  • Sales of crude oil for exports
  • Oil pipeline license fees
  • Rent of oil well
  • Rent of oil ground
  • Royalty for extraction of oil
  • Penalties for gas flared, etc.

Head 6 – Share from Federation Account or Direct Allocation

These are revenue from direct allocation from federation account which is 48.5 per cent to federal government, 24 per cent to state government and 20 per cent to local government. The remaining 7.5 per cent is special allocation for amelioration of ecological disasters.

Head 7 – Direct Taxes (PAYE)

These relate to the direct taxes of the personnel, police personnel, foreign service officers and residents of FCT Abuja.

Head 8 – License and Internal Revenue

This is a revenue derived from issuance of license and other internal revenue. Examples are as follows.

  • Arms and ammunition license fees
  • Gold dealer license fees
  • Gold smith license fees
  • Company registration fees
  • Club registration

Head 9 – Mining (Solid Minerals)

This is a revenue from mining of any other minerals apart from oil. This includes coal, tin, iron-ore, granite, etc.

Head 10 – Fees

These are revenues from court fees, court fines, probate fees, court registration documents and other forms of income arising from court powers.

Head 11 – Earning and Sales

These are revenues from investments of government in companies. Examples include dividend, interest on treasury bills, or fixed deposits, sales of government land, government house, sales of boarded vehicles and other government properties.

Head 12 – Rent of Government Property

This is a revenue from rent of government quarters, government offices, government land, government vehicles etc.

Head 13 – Interest and Repayment (General)

This is a revenue from interest on repayment of loans granted to government workers generally.

Head 14 – Interest and Repayment (State)

This is a revenue from interest on repayment of loans granted to state government for the development projects.

Head 15 – Reimbursement

This is a revenue from the reimbursement of over payment made to government workers and contractors.

Head 16 – Armed forces

These are revenues from armed forces education receipts, training programme, sales of small weapons.

Head 17 – Miscellaneous

These are revenues derived from any other source not mentioned above. They include:

  • Conscience money, that is money recovered from looted offices
  • Treasury bills issued to finance a deficit budget
  • Over-payment refund
  • Deposit lapse, etc.

Government Expenditures

Government expenditures are expenses incurred on behalf of the government through ministries, departments and agencies by any officer who is designated for it. All government expenditures are estimated by the spending organizations as authorized by the government financial regulations.

When planning for government expenditure and when the spending plans are approved, spending organizations are expected to make requests for monies to spend on their activities while different authorizations are needed for different spending.

Types of Expenditures

Government expenditures are of two types, recurrent/revenue expenditure and capital/development expenditures.

Recurrent/Revenue expenditures

These are expenditure that are incurred by government departments in the day to day operations and services of the departments. Examples of these expenditures are salaries, stationeries and supplies, and other expenditures for general administration.

Capital/Development expenditures

These are the expenditure that are made or incurred to acquire physical and permanent assets, either in the form of equipments, vehicles or buildings.

Authorization of Government Expenditure

The authorization of government expenditure has to do with the approval to spend money out of government budget. The authority authorizing the officer controlling expenditure to incure expenditure is called warrant.

All warrants must be issued and signed by the minister of finance. Warrants can be divided into two categories as follows:

  1. Recurrent expenditure warrant
  2. Capital expenditure warrant

Recurrent Expenditure Warrant

Types of recurrent expenditure warrant

  1. Annual general warrant (AGW)
  2. Provisional general warrant (PGW)
  3. Supplementary general warrant (SGW)
  4. Reserve expenditure warrant (REW)
  5. Supplementary statutory expenditure warrant (SSEW)
  6. Virement warrant
  7. Contingencies warrant

Annual general warrant (AGW)

The AGW authorises the accountant general to issue fund for the payment of personnel endowment and other services provided in the approved estimates (budget).

Provisional general warrant (PGW)

The PGW is issued before the appropriation acts comes into operations, it is issued to ensure the continuity of the service of government. In case the approved budget is late, then the accountant general can spend money using the PGW. The amount to be spent should not be more than what was expended in the previous year for a corresponding period. The PGW is issued at a maximum of four months or until the appropriate act comes into operation, whichever is shorter.

Supplementary general warrant (SGW)

This authority to incurred expenditure is issued for additional personnel emolument and other recurrent services which have been approved as a supplementary budget.

Reserve expenditure warrant (REW)

This is a warrant that authorizes the release of funds initially withheld from AGW and SGW by the minister of finance. The minister of finance has power to withhold any items of expenditure from AGW and SGW in which he need to exercise special control.

Supplementary statutory expenditure warrant (SSEW)

The SSEW authorizes additional expenditure more than that in the AGW and SGW by the legislature, provided it is chargeable to the consolidated revenue fund for statutoru officers.

Virement warrant (VW)

This is an authority to incurred expenditure (AIE) issued to transfer fund from the contingencies account back to consolidated revenue account during the period of natural disaster. This warrant is used in the following exceptional cases:

  • Where virement is not possible.
  • Where there is a degree of urgency and the expenditure cannot be postponed for supplementary budget to take place.

Contingencies warrant

Capital expenditure is paid from the development fund and it can only be incurred through the issue of one of the following warrant by the minister of finance. Please note that warrant is an authority to incur expenditure (AIE).

Types of capital expenditure warrant

  1. Development fund annual general warrant (DFAGW)
  2. Development fund provisional general warrant (DFPGW)
  3. Development fund supplementary general warrant (DFSGW)
  4. Development fund reserved expenditure warrant (DFREW)
  5. Development fund supplementary warrant
  6. Development fund virement warrant
  7. Development fund special warrant or development fund contingencies warrant.

The only authority through which funds are expended in government circle is known as warrant. We shall discuss in detail each of these warrant types.

Development fund annual general warrant (DFAGW)

This is used to issue funds for expenditure on capital project as contained in the approved annual estimate (budget).

Development fund provisional general warrant (DFPGW)

This authorizes the payment from the development fund of such monies that are necessary for carrying on projects for which expenditure have been authorized in the previous year. This warrant is issued before the approval of the draft estimate for capital expenditure by the national assembly at the beginning of the year.

Development fund supplementary general warrant (DFSGW)

This is issued for additional new project provided for in the approved supplementary capital estimate.

Development fund reserved expenditure warrant (DFREW)

This issued to release funds which the minister of finance initially withheld in order to exercise special control.

Development fund supplementary warrant

This is issued to authorized additional expenditure over and above that included in the development fund annual general warrant and development fund supplementary genera warrant.

Development fund virement warrant

This is issued to permit additional fund necessary for the completion of a capital project, for which funds have been allocated but the amount allocated in the estimate is not enough to complete the project, but where sufficient offsetting savings can be found in the amount appropriate for other projects in the same economic programme section.

Development fund special warrant

This is used to issue fund for unforeseen capital expenditure where virement is not possible and there is degree of urgency that the capital expenditure cannot be delayed.

Revenue Control

These are several actions embarked upon by the government to ensure that all incomes or revenues due to the organization or government are done.

Government can use any of the following listed ways to control its revenue:

  • Timely issuance of control forms
  • Policing issuance of control forms
  • Timely issuance of demand notices
  • Daily banking of all money collected
  • Giving authority limit to Government officers
  • Established cash limits
  • Establishment of functional internal control system

Fund and Fund Accounting


Fund is a separate fiscal and accounting entity government by special regulation separated from other funds and established for a specific purpose.

Types of Fund

The following are different types of fund available in government:

  1. Consolidated revenue fund
  2. Development fund or capital project fund
  3. Contingency fund
  4. Special fund
  5. Trust fund
  6. Inter-governmental service fund
  7. Revolving fund
  8. Self-liquidating fund


  • This topic discussed the various sources of government revenue, and explains and distinguishes between the capital and recurrent expenditures.
  • Types of capital and recurrent expenditures are explained.
  • The uses of revenue by the government and the revenue and expenditure controls in government through various means have been discussed.

Class Work

Multiple Choice Questions (MCQs)

  1. A warrant which authorizes the officer controlling expenditure to release for payments of personal emoluments and other services are contained in the approved budget is…………………….. (a) Supplementary general warrant (b) Provisional general warrant (c) Annual general warrant (d) Reserve expenditure warrant
  2. A ministry department or an agency that has full control over its accounting records is known as………………….(a) Self-accounting unit (b) Sub-self-accounting unit (c) Non-self-accounting unit (d) Both self-and sub-self-accounting unit
  3. ONE of the following is the name giving to estimates in the approved annual budget: (a) Below-the-line account (b) Above-the-line account (c) Personal cost (d) Both (a) and (b)
  4. ONE of the following is NOT an example of direct taxes as a source of government revenues: (a) Company income tax (b) Petroleum profit tax (c) Export duties (d) Pay as you earn
  5.  A separate fiscal and accounting entity governed by special regulation is known as……………(a) Estimate (b) Revenue (c) Expenditure (d) Fund

Short Answer Questions (SAQs)

  1. A warrant which is used in exceptional cases, where virement is not possible is called………………………
  2. Users of public sector accounting can be categorized into…………and….…….
  3. The rules and regulations governing the operations of public sector accounting is classified as……………….basis
  4. An authority to incure expenditure as used in public sector accounting is the same as……………..
  5. The officer responsible for the revenue and expenditure estimates and publication in the budget book is called…………..

Essay Questions

1.         (a)        List the eight types of funds you know.

            (b)        What is internal generated fund? Give examples of such funds.

2.         (a)        Differentiate between direct and indirect taxes and give two examples of each tax.

            (b)        What is a warrant?

            (c)        Explain the concept of virement and describe the circumstance under which such concept can apply.

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