Accrual accounting in the public sector

Okay, let's say you have a piggy bank and you like to save your money in it. Every time you get some money, you put it in your piggy bank. But sometimes, you get money for things you haven't done yet, like babysitting for a friend next week. Even though you haven't done the work yet, you still have the promise that your friend will pay you, right?

In the same way, the government has to track the money it is owed and the money it owes to others. Accrual accounting is a way to keep track of this by recording promises to pay and be paid, even if the money hasn't been exchanged yet.

Let's say the government promises to pay for a new playground at the park next year. Even though they haven't paid for it yet, they would record the cost of the playground as an expense for this year. This way, they can keep track of all the money they owe and have a better idea of their overall financial situation.

Accrual accounting helps the government make better decisions about their spending because it gives them a more accurate picture of their financial standing. So, just like your piggy bank helps you save your money, accrual accounting helps the government save their money and make smart choices with it.