MUNICIPAL ACCOUNTING IN THE UNITED STATES. Definitions.— The term imuni cipality," when used herein, is a generic designation of all public corporations formed by or for a community with powers of local gov ernment, by whatever name or designation known in the several States of the Union. Chief Justice Marshall defined a municipal cor poration as °such only as is founded by the gov ernment for public purposes where the whole interests belong to the government." °Munici pal accounting" is the adaptation or application of generally recognized principles and methods of accounting to the conditions, business and re quirements of municipalities — the art or sci ence of analyzing, classifying, recording, sum marizing and elucidating facts relative to finan cial transactions.
Objects of Municipal Its function or purpose is to make possible the pro duction, from the accounts of a municipality, of i complete, accurate and prompt information and statements of the financial results of its opera tions for any given period and of its financial condition at any given time, and to supply all other information which accounts can supply for the orderly and prosperous administration of municipal affairs.
Like accounts of private affairs, a munici pality's accounts should provide the data for thinking about the business at hand, the devel cpment of plans, the determination of and the judgment of results. If a municipality's accounts comply with these requirements, two aims will be satisfied: (a) administrative offi cers will be aided in performing their duties and in executing the trust imposed upon them, and (b) the public can pass intelligent judg ment as to the fidelity, efficiency and economy of their chosen officials.
Similarity between Private and Municipal The thought is not infrequently expressed that municipal accounting differs widely from private accounting; that each in it self constitutes a separate science bearing little or no relation to the other. That thought is a fallacy. There is no difference in purpose, method or principle between private andpublic accounting. The distinguishing features of each, which are sometimes thought to be fundamental differences, relate only to the subjects concern ing which information is needed. For instance, municipalities seldom, if ever, engage in busi ress for profit. They exist to render service at
cost. Hence profit and loss accounts are un common. On the other hand, individuals, part nerships and private corporations are not sub ject to the special limitations placed upon the administrative action of municipal officers by the terms of appropriation acts and legislation generally, and, hence, they seldom maintain ap propriation accounts. But these variations should not conceal or obscure the fact that the principles and rules of municipal and private accounting are identical. Furthermore, since municipal business may be administered eco nomically or improvidently, or efficiently or in efficiently, and thereby affect the interests of its proprietors directly by limiting the service ren dered or increasing service cost, there .is as much necessity of applying accounting princi ples to municipal business transactions as to private affairs of the same nature.
It is not known just when and where municipal accounting originated. Reli able authorities disclose that the Athenians maintained a rather well-developed system. Rome's plan was based upon and adhered closely to the system employed in private busi ness of the time. Great Britain, from which municipal accounting methods in this country were very largely borrowed, copied or adopted, is said to have had a system as early as the 12th century.
Prior to the 16th century, little if any thought or attention was given to the permanency of accounting records. That was true of private as well as of public accounts. When a transac tion was concluded and the account closed, the record was thought of no value and was de stroyed. The history of municipal accounting in the United States may, for the purpose of discussion, be divided in three eras. Naturally, no sharp line of demarcation separates them; nevertheless, they stand out with sufficient clarity and are as follows: (1) The period from the settlement of the country to and including the decade immedi ately following the close of the Civil War. Within that epoch, accounts of municipalities were maintained, with few, if any, exceptions, merely to show the flow of cash into and out of the municipal treasury. It may with propriety be characterized as the age of °receipt and dis bursement" accounting.