G&NP Chapter 4 Flashcards
Budget provisions in government constitutions and laws are designed to ensure that government revenues and expenditures are properly…
planned, authorized, controlled, evaluated and reported to the citizenry, legislature and creditors.
Stringent requirements are placed on governmental budgeting because
1) they are the only organizations in our society with the power to levy taxes
2) they provide services that are crucial to our well being
3) they function in a delicate legislative-exective-judicial “checks and balances environment
Budgeting is
the process of allocating scarce resources among unlimited demands
A legally enacted budget is
an official dollars-and-cents plan of operation for a specific period of time
Approved budgets are
management plans in both businesses and governments, but legally enacted budgets are also laws in governments
Appropriations are
legal authorizations to incur expenditures for various purposes that also limit legal authorization for incurring expenditures for specific purposes
Up-to-date information is needed to assist government officials:
1) avoid unintentional over expenditure of appropriation authority
2) determine whether revenues are achieving budgeted levels
3) know if they must deal with an unexpected shortage of resources
GASB Basic Principles for budgets
1) An annual budget(s) be adopted by every governmental unit
2) The accounting system provide the basis for appropriate budgetary control
3) Budgetary comparison statements or schedules be presented as basic financial statements or required supplementary information (RS) for
a) the General Fund
b) each major Special Revenue Fund that has a legally adopted annual budget
To maintain and demonstrate budgetary accountability:
1) The accounts should be maintained during the year on the budgetary basis
2) Encumbrances are recorded to track the estimated cost to complete encumbered transactions
3) Accounts should be established in the Revenues Subsidiary Ledger and Expenditures Subsidiary Ledger at the level of detail (at least) of the adopted budget
4) Any interfund transfers or other fund balances should be recorded in appropriately titled General Ledger accounts, but should not be recorded in subsidiary ledger accounts because only revenues and expenditures are subject to formal budgetary accounting control procedures
Some governments use a Budgetary Fund Balance account to
record the budgeted increase or decrease in fund balance for the year
Each subsidiary ledger must be modified to add
the detailed budget information
For the Revenues Ledger to be used effectively for budgetary control, each of the six subsidiary ledger accounts must include:
1) the legally adopted budgeted amounts of the specific type of revenues recorded in each subsidiary ledger account
2) the actual amount of revenues
The sum of the balances of the various Revenues Ledger accounts must equal
the difference between the Estimated Revenues account and the Revenues account in the General Ledger
Information recorded for each Expenditures Ledger account:
1) Appropriations
2) Expenditures
3) Encumbrances
4) Unencumbered Balance (Appropriations less Expenditures less Encumbrances)
Encumbrances
the estimated cost of unfilled orders and unperformed contracts
The balance of each Expenditures Ledger account is equal to
Appropriations less Expenditures less Encumbrances
appropriations
Legally established authority to spend that are created following specific guidelines
If the revenue estimate is increased during the period…
the increase would be debited to Estimated Revenues and credited to Budgetary Funds Balance
Encumbrances are recorded…
in total in the General Ledger and in detail in the Expenditures Ledger, when purchase orders are issued or contracts are signed for goods and services.
Comparing appropriations with the sum of expenditures and encumbrances shows
the amount of uncommitted (unencumbered) appropriations available for expenditure
the accounting upon receipt of encumbered goods or services is…
reverse the encumbrance entry and record the actual expenditure
the only entries that must be added or modified to maintain budgetary accountability during the fiscal year are
1) the budgetary entry to record an adoption (and revisions) of the budget
2) Entries recording encumbrances for orders placed or contracts approved
3) entries to reduce encumbrances upon receipt of goods ordered or contractual services
Subsidiary ledger entries are required only for entries that affect one of the corresponding General Ledger control accounts
Estimated Revenues Revenues Appropriations Expenditures Encumbrances
Interim budgetary reports are widely used to
help governing bodies monitor, evaluate and manage a government’s operations during a fiscal year
The GASB requires annual budgetary reporting for the General Fund and each major Special Revenue Fund either as
basic financial statements (BFS) or as required supplementary information (RSI)
Governments maintain their accounts on the budgetary basis during the year, for budgetary control and for interim and annual budgetary reporting purposes, then…
adjust the accounts to the GAAP basis at year end for the annual GAAP based reporting purposes
Encumbrances Method
consider encumbrances outstanding at year end to be the equivalent of expenditures for budgetary purposes
Interim revenues statements typically include, as a minimum, data from the Revenues Subsidiary Ledger accounts
1) the revenues recognized to date
2) the estimated revenues for the year
3) the difference between the two
Interim expenditures statements typically include, as a minimum, data drawn from the Expenditures Subsidiary Ledger at the interim statement date on
1) Appropriations for the year
2) Expenditures to date
3) Encumbrances outstanding at the interim date
4) The unencumbered balance of each appropriation
A third statement or schedule required for the General Fund and certain Special Revenue Funds, can be presented as either (1) a basic financial statement (audited) or (2) required supplementary information (unaudited)
The Budgetary Comparison Statement
The Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - is prepared on the budgetary basis, which often differs from GAAP so it’s often called the
“budgetary comparison statement”
or
“budgetary statement”
If the budget is prepared on a basis other than GAAP
both the budget data and the actual data should be presented on the budgetary basis, and the notes should
1) explain the non-GAAP budgetary basis employed and
2) reconcile the budgetary amounts with the GAAP amounts
The budgetary basis of account must be explained clearly and the government must present a reconciliation between the actual data reported in the budgetary statement and the amounts reported in the GAAP financial statements. This reconciliation may explain either
1) the differences between the net changes in fund balance reported in the two statements
or
2) the differences between the ending fund balance presented in the GAAP operating statement and the ending budgetary fund balance reported in the budgetary comparison statement
The accounting system then helps the administers
1) control the activities authorized to finance and carry out the plans
and
2) prepare the statements that permit comparison of actual operations with the budget and evaluation of variances
Three key budgetary phases and functions
1) planning
2) control
3) evaluation
Allotments
ration expenditure authority to subordinate agencies or departments in terms of monthly or quarterly expenditure ceilings
Budgets may be classified as:
1) Capital or current
2) Tentative or enacted
3) General or special
4) Fixed or flexible
5) Executive or legislative
Long term budgetary plans covering2 to 6 years
capital programs
General Budgets
The budgets of general government activities - commonly financed through the General Fund, Special Revenue Funds, and Debt Service Funds
A budget prepared for anything other than general governmental activities
Special Budget
ex: Capital Projects Fund, Internal Service Funds, Enterprise Funds
Fixed Budgets
Those in which appropriations are for a specific dollar amount of expenditures or expenses.
Flexible Budgets
Fixed per unit of goods or services, but variable in total according to demand for the good or service
Budgets are sometimes categorized by the preparer such as:
1) executive budget
2) legislative budget
3) joint budget
4) committee budget
After estimating the fund balance to be available at the beginning of the upcoming budget year, the budget officer must obtain preliminary estimates of…
1) 1) The revenues expected from all revenue sources at current rates of taxes, fees, and other charges.
2) Any other sources of appropriable resources.
The fund balance needed at the end of the upcoming budget year for carryover to the next year.
Executive Budget
A compromise between (a) the expenditure authority requested and (b) the expendable financial resources estimated to be available to finance the expenditure requests
The most common approaches to expenditure budgeting
- Object-of-expenditure
- Performance
- Program and planning-program budgeting (PPB)
- Zero-base budgeting (ZBB)
Often refereed to as the line-item object of expenditure approach or the traditional approach, has an expenditure control orientation
Object of Expenditure Approach
Essential Elements of Object of Expenditure Approach
1) Subordinate agencies submit detailed budget requests to the chief executive in terms of the types of expenditures to be made. These request include the number of people to be hired in each specified position and salary level and the specific goods or services to be purchased during the upcoming period.
2) The chief executive compiles and modifies the agency budget requests and submits an overall request for the organization to the legislature in the same object of expenditure terms
3) The legislature makes line item appropriations, possibly after revising the requests, along object of expenditure lines. Performance or program data may be included in the budget document to supplement or support the object of expenditure requests
The accounting system must…
capture data in sufficient detail to permit budgetary control and accountability at the legislative to executive budgetary control points
and
accumulate data in sufficient detail to permit budgetary control and accountability at the chief executive - department head budgetary control points
The appropriations detail adopted in the act determines…
the flexibility granted to the executive branch by the legislative body and the budgetary control points.
