Governmental Unit vs. Commercial Company

Subject: Management
Pages: 2
Words: 499
Reading time:
2 min
Study level: Bachelor

A primary concern of any government is to ensure public good and services, while commercial entities focus solely on the profit and private gains. There are several differences between a governmental unit and a commercial company. Governments should provide good for the public whereas private companies should make money for the owners. Leaders of the governmental units are selected or appointed by the masses, while owners of a business are the leaders of the commercial units.

Another key difference is that governments obtain profit though taxes and public services whereas business structures provide products and services. Yet all commercial entities should pay taxes and follow regulations made by governmental structures in order to fund the budget of governments at various levels. The process of planning, forecasting, monitoring and evaluating the budget is called budget processing (Borad, 2020). This includes a variety of aspects required to conduct a business of both commercial and governmental structures.

The first term related to the budget processing is appropriation. This is setting aside money for specific purposes and plans (Murphy, 2020). A governmental unit allocates money for short- or long-term needs. For example, appropriations for the United States federal government are decided by Congress via different committees and fund each year. The second important term is encumbrances which are allocation of a part of the budget to pay anticipated liabilities (Hayes, 2020). By this, an organization ensures that an entity does not overspend its budget. Governmental structures report the encumbrances as a reserved balance for unexpected expenses. For example, the encumbrances apply to the real estate aspects, such as property taxes and mortgages.

The third term is expenditures that are funds used by a commercial or governmental entity to attain new assets or to improve existing operational units. Government expenditures are related to purchasing goods and services that include public investment, consumption and payment transfers, such as social payments or pension (My Accounting Course, n.d.). For example, governmental units may spend money for the national defence or healthcare for the sake of the general population.

Expenditures also can be used to support start-ups, small and medium sized businesses, so expanding the private sector of the economy. The last term that is used in the budget processing is the budgetary fund balances. This term refers to the estimated net worth of a governmental entity. It is “the difference of the total of estimated financial assets and deferred outflows and the estimated total of the related liabilities and deferred inflows’ ‘ (University of Tennessee, n.d.). For instance, governmental structures apply the budget fund balances when planning about current and future fiscal years.

Overall, the key difference between governmental and commercial units is in their purposes. A governmental organization should provide goods and services for the public though obtaining the profit from taxes and services. In contrast, a commercial unit is owned and works to bring profit for its owner. There are terms, such as appropriations, encumbrances, expenditures, and budgetary fund balances related to the budget processing.


Borad, S. B. (2020). Budgeting process – Steps and importance of budget. EFinanceManagement. Web.

Hayes, A. (2020). Encumbrance. Investopedia. Web.

Murphy, C. B. (2020). How a cash flow statement shows a company’s appropriation of cash. Investopedia. Web.

My Accounting Course. (n.d.). What are government expenditures? Web.

University of Tennessee County Technical Assistance Service. (n.d.). Budgeting formula, fund balances, revenues and expenditures | e-Li. Web.