Most governments, at the national, provincial, and city levels, maintain a cash book. That is, they report cash inflows from taxes, fees, and assessments and cash outflows for their expenditures, with the difference being the deficit or surplus for a period. There is only one balance sheet account, cash which is decreased by a deficit and increased by a surplus. There are no other assets on a balance sheet, nor are there any liabilities. Thus, there is no shareholders’ equity for the accumulated difference between assets and liabilities.
The shareholders for a government entity are the taxpayers who will be called upon to deal with an accumulated deficit by paying more taxes or by reducing expenditures on services to them. Yet there is no formal accounting for what we, the taxpayers, are up for. True, observers do keep track on paper, with the U.S. government accumulated deficit a horrifying $34 trillion in 2024 and projected to growth more. That calculation just goes into the bottom draw (so to speak). Without the formal accounting, politicians are not held to account, even ignoring the accumulated deficit as both candidates in the 2024 U.S. presidential campaign did. Indeed, they proposed lower taxes and higher expenditures to get votes.
An accumulated cash deficit, even if calculated, is not the whole picture. An accrual balance sheet would give a more complete picture, and so would an accrual income statement. National governments spend much on defense equipment for the security of their citizens in the future…aircraft carriers, submarines, missiles, and much more…but this expenditure goes into the current deficit under the cash accounting. No: these are assets to go on an accrual balance sheet. If accrual accounting were implemented, the reported deficit for the period would be lower. And there are other assets: national parks, government buildings, infrastructure, and more. There is no record of these assets, nor for the depreciation (of infrastructure), so it comes as a surprise that suddenly it is realized that bridges and airports must be replaced or upgraded at significant cost, again reporting cash deficits.
Perhaps the most pernicious problem is failing to keep track of debt on a balance sheet. Many politicians don’t think about it. Some even see debt as revenue! It’s cash coming in! Regular publication of a government balance sheet sent to the shareholders, the taxpayers, might get the thinking straight. Perhaps even an annual meeting…a virtual town hall…where politicians present their (accrual) accounts to shareholder-taxpayers just like the accounts are presented to shareholders at an annual meeting for corporations. That might also bring more sense to voters who now understand what they are up for.
It is a serious matter. The crises that arise from government indebtedness give rise to political extremes. Civilizations fall under the weight of debt. Accrual accounting, please.
Look at the Wikipedia entry on accrual accounting for governments: