Difference between GAAP and Budgetary basis

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In the world of accounting, GAAP are the accounting principles that are acceptable in general. They are the ones that govern how and what is reported in the records of accounting. This is however not the case for budgetary accounting basis. This method is commonly used in accounting for the government and is not subjected to the same GAAP provisions. The differences in the two methods can be categorized or summarized as follows:

The primary method of calculating and recording accounting information is the generally accepted accounting principles, which also uses the accrual accounting basis. The accrual basis requires that financial transactions are normally recorded and noted simultaneously as they occur. On the other hand, budgetary basis makes use of the modified basis of accrual or else, cash plus method of encumbrance. When the cash basis and modified accrual accounting are combined, this results to the modified accrual accounting. As such, liabilities and also expenditure are recorded as they occur. They may also take place when the transaction basis is physical cash.

Part of the difference applied in several accrual methods is timing. In the GAAP method of accounting, the accrual basis of transactions is parallel with recording of these transactions. Nonetheless, with the budgetary accounting basis, this is not necessary. Rather, a lapse can occur between the period of accounting and the period of budgetary. Thus, actual financial transactions recording and their reconciliations may occur at a future date.

The reporting viewpoint of the budgetary accounting basis may somehow differ with the GAAP accounting perspective. In the budgetary accounting basis, some items may be reported as being part of the general fund while these same items are separately reported to consist of the general fund when it comes to GAAP. The debt service is one such example. Budgetary basis of accounting permits debt service for general fund while GAAP doesn’t. This is just a matter of the structural basis of methods of accounting.

Reporting of entities where funds are generally allocated is the other difference between the budgetary basis of accounting and the GAAP. In the GAAP method of accounting, every entity is identified and kept in record. Nonetheless, in the budgetary accounting basis, not all entities where funds are appropriated will be shown in the general account and also the government’s budget. When this happens, this is known as difference in entities. For example, the department of urban development and governmental housing is partly funded by the issued bonds. The bonds never reveal on the report of the budget to consist of the debt by the government even if HUD is an agency of the government.


While expenditures are normally recorded when paid for in cash in the budgetary basis of accounting, under the GAAP method, the expenses are recorded upon incurring the underlying liability. Moreover, such encumbrances like contractual commitments that are outstanding are treated as expenses rather than a reserved balance fund under the GAAP method.

For purposes of budgetary reporting, the continuing appropriations are usually recorded in the general fund together with other sources of finances and funds uses so that the calculation of budgetary deficit or surplus can be achieved. This is for purposes of showing compliance with authorized spending in the period of reporting. For GAAP purposes, continued appropriations are normally reported as reserves and not included in the general fund.

Some revenues and expenses that are accrued in the GAAP under general fund are accounted for differently when it comes to the budgetary accounting basis. These include fixed assets that are depreciated for purposes of GAAP but which are expensed fully in the acquired period for purposes of budgeting.


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