Accounting and Budgeting: National Level

Question 1

Cash Accounting

Answer 1

Cash Accounting is one of the easiest forms of accounting. In its simplest form it simply records the cash receipts and cash payments. It is useful as a stewardship role and as a control function. The cash receipts and payments are clearly identified. The system is straightforward and therefore is both easy to operate and cheap. The authority of the legislature can be easily passed down via cash limits and cash controls. Similarly, the reporting by the institutions is clear. There is limited opportunity for creativity in accounting terms although payments may be delayed or brought forward at the year-end in order to ensure budgets are met.

Question 2

Accruals accounting

Answer 2

Accruals Accounting is the method most commonly used in the commercial sector. It adjusts the accounts to take account of timings of expenditures. Revenues and expenses are recognised when they fall due, not when the cash changes hands. This form of accounting has
been adopted as part of the process of integrating budgeting and performance management.

The key difference can be described as follows: cash accounting identifies how much has been spent in the last year, whereas accruals accounting identifies the costs incurred in the last year after adjusting for capital payments and other timing adjustments such as stock.

Question 3

Budgetary (or appropriation) accounting

Answer 3

Budgetary accounting (or ‘appropriation’ accounting ) is a system
in which accounts are presented using the same classification as that used in the budget process, so that readers of the accounts can see whether the funds were used as budgeted. This is an appropriate method of increasing transparency and linking the budget to the actual expenditure. It is then easy to see where any variances between the budgeted and actual expenditure occur.

Question 4

Medium-Term Expenditire Framework

Answer 4

The macroeconomic and fiscal framework sets out the medium-term economic forecasts. The aim is to arrive at aggregate revenue forecasts that will set the hard budget constraint on expenditures over the period.

At the highest level, revenues need first to be assigned to non-discretionary items (debt), and to different levels of devolved government (e.g. how much for the federal government and how much in the provincial ‘pool’). Following that the allocation of assigned revenues between sectors and agencies is done. Such systems are called Medium-Term Expenditure Frameworks (MTEFs), Public Expenditure Plans (PEPs) or other forms achieving similar aims, such as the UK’s Comprehensive Spending Review (CSR).

Question 5

Budget Timetable

Answer 5

Budgets must be prepared within a tight timescale, following a logical
sequence of activities. The components of the sequence are

• the planning stage
• preparation of the Annual Estimates
• budget execution
• evaluation.

National budgets have to be prepared in time for approval by Parliament, and appropriation. This is usually done on a fixed date, before the beginning of the financial, or fiscal, year (FY).