Introduction to Governmental and Not-for-Profit …Title Introduction to Governmental and Not-for-Profit Accounting, 7e Author DELL Created Date 9/12/2015 2:48:45 AM

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 3-*

Introduction to Governmental and

Not-for-Profit Accounting, 7e

Chapter 3: Budgetary Considerations

in Governmental Accounting


Budget

• Estimate, specified time period

• Legal document, public policy

• Where resources come from, where spent

• Appropriation تخصيص

– Authority to spend up to a maximum amount

• Recommended by GASB

– Annual budgets adopted by governments

– Accounting system serves as basis for

budgetary control


Budget Laws

• States provide requirements for budgeting

by state and local governments in state

– Types of budgets, budgetary process, etc.

• States generally require balanced local

budgets

• What is a balanced budget?

– Proposed expenditures do not exceed

estimated available resources

– Often not balanced on accrual basis

• Operating budget: Typically for a fiscal year

– Day-to-day activities

– Annual or biennial

– At least General Fund and significant Special

Revenue Funds

• Prior year actual, estimated current year

• Capital budget: Plans for long-lived assets

– Land, buildings, equipment

– Critical for debt planning


Types of Budgets

Types of Budgets

• Cash forecast

– Estimates cash received/expended during a

particular future period

– Predicts short-term borrowing/investing needs


Budgetary Approaches

• Object-of-expenditure

– Traditional/line-item approach

– Shows categories of expenditures

– Illustrated in textbook

• Performance and planning-programming

budgeting

• Zero-based budgeting



The Budget Process:

Budgetary Policy Guidelines

• Authors: CEO, legislative body, budget

officer

• Consider:

– Expected changes in revenue

– Unusual expenditures expected

– Expected current year surplus/deficit

– Current and future economic conditions


The Budget Process:

Budgetary Policy Guidelines

• Policies regarding allowable:

– Tax and fee increases

– Salary adjustments

– Inflationary adjustments

– Capital spending


The Budget Process:

Budget Calendar

• When each step must be completed

• Who is responsible

• Dates may be in the laws

Service Efforts and

Accomplishments • May supplement budget requests with

expected accomplishments

• Description of function

• Inputs (service efforts)

• Outputs

• Outcomes



Budgetary Review

• Assessment of departmental requests by

central budget office

• Check for errors

• Verify all is appropriate, justified, realistic

• Make sure budget is balanced

• Consider prioritization

• Budget summary to CEO

– To prepare for legislative review


The Budget Document

• Budget message

• Budget summary

• Detailed supporting schedules

• Capital projects schedule

• Detailed justification for recommendations

• Drafts of tax levy ordinances/acts


Legislative Review

• Legislative body receives completed

budget document

– Review, modify, approve, and adopt

• Public hearings

– Modifications

• Budget ordinance enacted to provide legal

authorization for expenditures

• Next: Publish budget, enter into accounts


Property Tax Levy جباية أو تحصيل الضرائب العقارية

After approval of the budget, the legislative body must raise revenues

necessary to finance the budgeted expenditures.

The Most Common Example of these revenues is Property Taxes

Two approaches are used to determine the taxes to be

assessed on each piece of property.

Legally fixed Rate OR Rate based on need


Property Tax Levy

Rate based on need Example

Using Budgetary Information

• Control mechanism

– Department and activity heads, central budget

office

• To Make Monthly statements show

amounts available for spending by object

• Compares actual to budget, by line,

favorable/unfavorable variances

– Need to adjust future spending plans?



Using Budgetary Information

• Used to plan remainder of year

• Anti-deficiency laws

– Civil and/or criminal penalties for

overspending

• Annual financial reports

– Budgetary comparison schedule or statement

– General and major Special Revenue Funds

with legally adopted budget


Classifying Revenues and

Expenditures Revenue Classifications

BY SOURCE

EXAMPLES:

Taxes

Licenses

Intergov.

transfers

BY FUND

EXAMPLES:

General Fund

Special Rev. Fund

Capital Projects

Debt Service BY SUBCATEGORY

EXAMPLES:

Property Taxes

Sales Taxes


Classifying Revenues and

Expenditures

Expenditure Classifications

BY FUND

EXAMPLES:

General Fund

Special Rev. Fund

Capital Projects

Debt Service

Legal level of budgetary control?

BY

FUNCTION/

PROGRAM

EXAMPLES:

Public Safety

Parks and

Rec.

Health

BY ORG. UNIT

EXAMPLES:

Police

Fire

BY

ACTIVITY

EXAMPLES:

Investigation

Patrol

BY OBJECT

EXAMPLES:

Personnel

Vehicles


Budgetary Accounting: Overview

• In governmental accounting, budget

activity formally recorded

• Appropriations are authorizations to

spend as well as limits on spending

• Recording budget activity:

– Helps ensure compliance with spending

limits

– Enables reporting to help management

adjust for revenue shortfalls


Budgetary Accounting: Overview

• Budgetary accounting entries

– Record budget

– Record changes to budget

– Record setting aside of resources

(encumbrances)

– Reverse encumbrances to record actual

receipt تسجيل المصروفات الفعلية –التجنيب أو اآلعباءتسجيل –الموازنة تسجيل التغيرات في –الموازنة تسجيل


Budgetary Accounting:

Journalize Budget



Journalize Budget

If Tiny Town were to issue a purchase order for $1,000, the entry

to record the encumbrance would be this:

1- To record the adopted budget.

2- To record encumbrances.



Journalize Budget

3 - When the open Purchase order is Fulfilled.



Journalize Budget

The approved budget for the General Fund of Tiny Town for 2012. is as

follows:

The events and transactions for January 2012 are as follows:.



Journalize Budget



Journalize Budget

To record the Budget



Journalize Budget




Journalize Budget




Journalize Budget



Journalize Budget



Journalize Budget




Journalize Budget




Journalize Budget




Encumbrances Summary

Therefore:

Total appropriation

- Encumbrances balance

- Expenditures balance

= Available for appropriation


Appropriations Ledger

Police Cars Date Item Appropriation Encumbrances Expenditures Available Appropriation

CR DR CR DR CR

XX Budget 100,000 100,000

XX Order 46,000 54,000

XX Receipt 46,000 100,000

XX Expenditure 45,000 55,000

• Unexpended appropriation transferred to

another activity

• Remember: “legal level of budgetary

control”

Appropriations – materials $8,000

Appropriations – salaries $8,000

To record budget interchange as a result of unforeseen event.



Budgetary Interchanges


Other Matters

• Predictable expenditures (e.g. salaries)

don’t require encumbering

• Encumbrances not equal to expenditures

– Reverse encumbrance for originally

encumbered amount—not expenditure

amount

• Partial orders

– Reverse encumbrance for only amount

encumbered for items received


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Introduction to Governmental and Not-for-Profit …Title Introduction to Governmental and Not-for-Profit Accounting, 7e Author DELL Created Date 9/12/2015 2:48:45 AM