Question

Explain why a state of local government’s statement of activities begins with expenses, whereas a business’ income statement starts with sales or revenues.

Answer 1

In case of Government Accounting (statement of activities) expenses includes public safety, public works, healthcare, education, and engineering services mainly. These expenses are priority-based and therefore Revenues are matched with expenses in order to get the “change in net assets”. Since expenses are prioritized, this head comes first.

In case of Income Statement (business), Revenues come first since this gets priority and therefore expenses are matched with revenues in order to get Profit or Loss amount.

This happens because a business has profit-motive attitude but a government doesn’t have that, instead a government has social-welfare attitude.