Sound budgeting, sound accounting and sound auditing are important for any governmental or institutional accounting. Governmental and institutional accounting deals with the principles and practices of accounting in connection with groups of people in society who are united in non-profit undertakings for the purpose of rendering services of particular kinds to their groups specifically and to society generally. The principal accounting problems of governments and institutions include accounting for revenues in accordance with restrictions placed thereon by legislative bodies, donors or governing boards, accounting for the appropriation, encumbrance and accrual of expenditure items in each of various funds. Many municipalities in the U.S., particularly the smaller ones, are finding it impractical to accrue revenue items and, hence, are accounting for revenues on a cash basis. Many problems relating to system installation, internal accounting control, external auditing, etc. have not been solved by governmental and institutional bodies in a manner acceptable to accountants generally.

The question of the distinction between operating income and capital gains was raised at the recent meetings of the American Accounting Association. Capital gains or losses are a manifestation of imperfect income measurement and result because of the requirement of modern business for periodic computation of net profit or loss. Capital gains or losses are composites of imperfect estimates of depreciation, imperfect allocations of costs, imperfect separation of capital and revenue expenditures, disregard of or imperfect adjustment for price level changes. While there is no distinction in theory between capital gains and operating income, there is a legal distinction for income tax purposes. The legal distinction is important since the tax on capital gains is less. The maintenance of the real capital of an enterprise in the face of a rising price level requires the continual upward adjustment of owners' permanent equity accounts as long term assets are consumed. This is necessary in order to restore to the business real purchasing power equivalent to that used up.