A poli. sc. student took an accounting course largely because it might look good on his resume. In that course he was surprised to find out that he learned how to spot problem firms from looking at financial statements. The teacher showed one firm that was trying to get a loan but had all these customers who weren't cash customers and thus had a large amount of its assets in {accounts receivables}. The bank was reluctant to grant the loan since it didn't feel that company had enough ready cash to make payments on the loan. The instructor also showed other companies that were really operating on borrowed money. They had notes payable and bonds payable and just weren't earning enough revenue to cover all this borrowing. The student felt pretty comfortable with most of concepts, except the stuff on debits and credits . Later, when the student took a budgeting course in his pol. sci. major the professor asked if anyone knew anything about accounting. The student proudly raised his hand and promptly got a copy of the financial statements from the local government jurisdiction with the assignment of presenting his opinions on the financial soundess of the government for the next class. Well, these government financial statements were not anything like those he saw in the business class he took and while he didn't think the accounting text he had from that class would help it didn't matter since he sold it (for $7.50). In examining the financial statements for the local jurisdiction he couldn't find much that was familiar. He did figure out that this thing called {combined statement of revenues, expenditures, and changes in fund balance} was like the income statement and the their was a balance sheet as with the business course. But he didn't see anything for depreciation and he could not find anything separating current from long term liabilities in the balance sheet. He did see what appeared to be a large amount of taxes receivable and remembered about the firm that couldn't secure a loan because of it large amount of accounts receivable. Overall, he simply had a hard time reading the statements since each one covered two pages lain side to side.
When he gave his (short) presentation, he figured honesty was the best policy and didn't try any BS. He talked about the size of the receivables and told of his confusing in terms of trying to figure out how much debt the government had and whether the government was bringing in enough revenue to cover the future payments the debt would require.
Actually, he found out the prof. anticipated his bewilderment and used it to help explain financial reporting and accounting in government. The teacher quickly pointed out the lines where the debt appears (in something called the general long term debt account group) and then drew attention to the revenue and how small it was in comparison to all the debt. He also said that a lot of debt was not reported in the financial statements so the situation was even worse than it appeared. He told the students they could drive around the locality to see the conditions of the long term assets such as buildings and roads. The students all laughed knowing what terrible shape the physical structure was. Then the instructor pulled out another financial statement from a different area. He went through the exact same exercise, except this area was in much better shape with respect to debt. The items for the debt showed a small amount and not that much bigger than the incoming revenue. The statements had some dollar values for equipment and buildings but since none of the students had ever been to that area they couldn't say if the physical plant (structure) was in good shape or bad.
Most of the student walked away with some idea of what was in a government financial report and how to read it, although they carried some suspicion about how candid governments were about their financial success and conditions.