Ch. 3 Flashcards
What is the primary source of revenue for governments?
Taxes
What is resident property tax based on?
The budget, not actual spending
How does a government prepare a budget?
Expenses - Nontax Revenue = Taxes
Based on spending needs.
Back into it, start with costs and go through capital needs.
What are budget contingency fees?
Budgeting for the unknown
What is an appropriation?
An authorized legal spending limit
Where does money come from when dealing with unexpected repairs?
Reserves - prior earnings put away
Eliminating other costs
Work - increased revenue
What is an encumbrance?
Intend to spend
Estimated expenditure
How to determine what is available to spend?
Appropriation - Expenditure - Encumbrance
What is an assessed valuation rate?
Do the budget, calculate the money the government needs
Based on relative value of real estate
What are grieved taxes?
An individual believes the government has overvalued their property and argues to prove it is worth less
Why are governments fundamentally different than businesses?
A business has seasonality (busy/slow times) that affects cash flow
Governments collect 90% of revenue within the first month of the year - property taxes (assessed the first day of the year)
What is the formal definition of a budget?
A formal estimate of the resources that an organization plans to spend for specified purposes during a specified time period (typically, a fiscal year) and the proposed means of acquiring these resources
What is the purpose of a budget?
To set forth the activities the organization plans to undertake and how the organization intends to finance them
When is a budget considered balanced?
When revenues and amounts made available from previously accumulated fund balances equal the appropriations made to authorize expenditures
***using savings does not necessarily mean balanced
What does a capital budget focus on?
The acquisition of long-lived resources such as buildings, roads, and equipment.
Capital outlay
Needs to be incorporated into accrual budgets and way beyond at least 10 years.
What is the purpose of the budgetary fund balance account?
To keep track of actual revenues against budgetary estimates and actual expenditures against appropriations
Credit means a surplus was budgeted.
Debit means a deficit was budgeted.
What are five typical sources of revenue received by the local government?
1) Taxes
2) Charges for services
3) Fines and forfeits
4) Fees for licenses and permits
5) Interest on investments
6) Intergovernmental revenues (grants from other governments
What is the purpose of encumbrance accounting?
To protect an appropriation from being overspent
Why are investors willing to loan money to the government at low interest rates?
Low risk and interest earned is tax free.
What things does a good budget consider?
Recurring expenditures
Recurring revenues
One-time costs/revenues
What are nontax revenues?
Income earned from: interest rates, parking permits, beach fees, recreation fees, etc.
***Non residents are charged more - let other people pay our taxes
Object of Expenditure Approach
Also known as the traditional or line item approach.
Prepared to show, as line items, every category of expenditure to be made during the year, described in terms of the physical good or service to be obtained by the government.
***Simplest approach.
Zero-Based Budgeting Apporach
Each year’s budget starts from scratch, or zero, with each activity justified as if it were new.
