Q: Why are there two types of accounting systems?  Why not consolidate financial reporting for municipalities into a single system? In other words, what was the rationale for setting up two systems for municipal reporting?
 
A: This is an excellent question concerning the present rules for Fund Accounting.

As municipal accounting is presently structured, there is a Government-Wide financial statement which is designed to provide readers with a broad overview of the municipal’s finances. These statements include a Statement of Net Assets (balance sheet) as well as a Statement of Activities (income statement) using the accrual basis of accounting.

However, as you point out, there is also a Governmental Funds statement which is created on a modified accrual (fund accounting) basis and therefore focuses on cash or near cash activities.

There is considerable support for moving totally away from fund accounting to accrual accounting, and using accrual accounting for Business-Type entities is a step in that direction. This movement to accrual accounting is a general step in changing municipalities completely from fund accounting to accrual accounting. Time will tell.