Introduction
A government, whether the federal government such as the united states of America's government or state government such as that of Wisconsin in the united states, has to account for inventory on the consumption basis. A running government has to consume a certain amount of money every year. The consumption of capital is a liability to the involved government. The spending of the money had to be accounted for and planned for in a financial year for a government. Accountants to the government have to account for the government's spending. The government recognizes the inventory as expenditure and not an asset and reports on it at the end of its financial year.
Government's capitals projects and activities involved in debt servicing should be reported as obligations in the long term. The obligations can be recorded as a combination of funds that are consumed by the government. The combination of funds includes all other, other governmental economic activities.
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Requirements
There are specific requirements when a government is accounting for inventory on the consumption basis. One of the elements is the accounting method to be used. Traditionally, the accounting method used to record an asset at the time which it is purchased. In that method, the fund balance is recorded as non-spendable. State of the art agencies is using the consumption method of accounting. The process takes into account the slightest changes in the inventory.
The second requirement is the consumption basis in the inventory be recorded as an expenditure instead of an asset. The consumption of the government is a liability and costs the government money.
Conclusion
A government has to account for the slightest changes in the inventory and especially the one concerned with the consumption basis. The accountants recommend that the records should be done at the end of the year. The timing is usually done to coincide the accounting with the revelation of the budget to be used in the next financial year.
