In order to report the derived revenues from the taxes described in the previous paragraphs on the accrual basis of accounting and economic resources measurement focus used in the government-wide financial statements, the government needs to consider the taxes that will be collected after the availability period that is used for reporting these revenues on a modified accrualbasis. The government needs to calculate how much revenue it “earns” during its fiscal year from exchange transactions that occurred during that fiscal year.

Consider the following example: A taxpayer prepares an income tax return for the calendar year ended December 31, 20X1.The taxpayer had withholdings taken from her salary during the year. In addition, the taxpayer made estimated tax payments throughout the year, with the final estimated payment made on January 15, 20X2. The taxpayer filed an extension request on April 15, 20X2, and paid an amount she estimated would be due with the final return. The return was filed on August 15, 20X2, which resulted in a refund that the taxpayer applied to her estimated payments for the calendar year ending December 31, 20X2. When completing her 20X2 tax return, the taxpayer discovers an error in the 20X1 return and files an amended return on May 15, 20X3, requesting an additional refund. How much would the government ultimately be entitled to receive in taxes from the earnings of the taxpayer during the government’s fiscal year ended June 30, 20X1?

To approximate the answer to this question, a government would need to look at each component of the various tax events that are described above and determine how best to record the revenues (or refund) that occur from those events. The government has to assume that it is virtually impossible for it to have actual information in time for it to prepare its own financial statements on a timely basis. Furthermore, the fact that the tax year and the government’s fiscal year are different essentially
assures that some estimation process is required.

Taken From : Governmental Accounting Made Easy

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