These types of receivables occur from exchange transactions—the government is not just collecting a tax or a grant, it is providing specific services in exchange for money.

There are two basic considerations that the nonaccountant should understand about accounts receivable. First, a receivable (and the related revenue) should not be recorded until the organization actually earns the revenue and the right to receive the money from the entity to whom they are selling services. Second, not all receivables are ultimately collected.

In terms of revenue recognition, the general rule is that the government would earn the revenue when it provides the services and has a right to collect the revenue. In the case of the governmental college, revenue from tuition would be recorded at the end of the semester to which the tuition related. The revenue is matched to the period in which the college incurred expenses to earn that revenue, which is during the semester to which the tuition relates (assume that the fiscal year-end does not occur during the semester, which would require more complex calculations). As with the governmental water utility example, the utility earns revenue (and records a receivable) when services are provided to its customers. A receivable is recorded at the date of the statement of net assets for water services provided. Some of these services already will have been actually billed and some of these services may not have been billed because of waiting for meter readings or bill processing. An estimate of the unbilled amounts due the water utility would also be recorded as a receivable.

Taken From : Governmental Accounting Made Easy

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