Public finance is mainly concerned with the allocation of funds for the purposes of public administration. It’s the study of how the public finances of an area are allocated and where they go.
Public finance is basically the study of how the governments revenues and expenditure of government are used to meet their goals and objectives. It is the field of public economics, which examines the impact of government spending and revenues on the overall growth of the economy and its ability to meet its goals.
In order to better understand the concept of finance, it is important to understand what the term means. A budget is a document in which a government sets out its intentions regarding how it wants the money it makes to be spent. The goal is to set aside a budget that is larger than its revenues and its expenditure and still maintain enough funds to provide basic services to the public.
There are three categories of funds in a budget – the government’s expenditures; revenue – taxes; and reserves. Exhibits, such as income statement, balance sheet and cash flow analysis, help a government to decide how to spend the money it has. The finance department manages the finances.
Public finance does not just refer to the government. Every other public sector such as schools, universities and healthcare systems also make use of this process. Public finance also affects private industries, especially those whose revenue is mainly tied to the tax revenues of the government.
The finance department of government also takes into consideration all the other sources of revenue available to the government. This includes customs duties and excise duties on goods imported and exported from other countries and on certain agricultural products grown within the country.
Different kinds of financing require different ways of accounting and recording. The two major methods of public finance are general finance and income accounting.
General finance involves recording income by individuals, companies, governments or any other organizations for the purpose of consumption. This includes business enterprises.
Income accounting on the other hand is concerned with the difference between income made up of investment and income earned by businesses. An example is the difference in value of money invested to the value of the money paid back. The distinction between capital and debt is recorded here too.
Private sector is not the only sector which uses public finance. Even companies, organizations and people make use of this method. Some companies have their own accounts and books while some simply rely on other financial resources for accounting. This is why accounting is often referred to as financial reporting.
Some business enterprises also rely on financial reports produced by government agencies for their financial reports. The Financial statements are required for them to show their financial status. These reports contain information like cash receipts, cash payments, liabilities and equity holders, net worth, assets, total debt and surplus and so on.
A company also relies on a report prepared by the government when they are seeking to procure funding from banks or other financial institutions for their growth and development. This is known as a business plan. This report helps to determine if the company will be able to repay the loan and get approved for the amount. It also determines the lending agencies’ willingness to give money to the company.
It also helps business enterprises make decisions about expansion plans, whether to buy land, invest in machinery or take over other assets. These business plans include factors such as the expected future revenues. which is necessary for business managers to decide on whether they can get loans and other financial support from financial institutions. When they get loans, the business plans also help them to prepare the company’s balance sheet.
Public finance is important in helping business enterprises in order to meet their financial responsibilities. It helps businessmen and businesses grow and also provide a level playing field to them in the business world.