CHAPTER 3
BUDGETARY MATTERS
1.
RECOMMENDATIONS OF THE GASB:
-AN ANNUAL BUDGET SHOULD BE ADOPTED BY EVERY GOVERNMENTAL
UNIT.
`-THE ACCOUNTING SYSTEM SHOULD PROVIDE THE BASIS FOR
APPROPRIATE BUDGETARY CONTROL (DONE THROUGH BOOKING THE
BUDGET.)
-BUDGETARY COMPARISONS SHOULD BE INCLUDED
APPROPRIATE FINANCIAL STATEMENTS AND SCHEDULES.
2.
IN
THE
DIFFERENCES BETWEEN BUSINESS BUDGETS AND GOVERNMENTAL
BUDGETS.
GOVERNMENTAL BUDGETING:
-BUDGETS FOR GOVERNMENTS GENERALLY ESTABLISH LEGAL LIMITS
ON AMOUNTS THAT CAN BE SPENT IN TOTAL AND OFTEN BY INDIVIDUAL
CATEGORY.
-GOVERNMENTAL BUDGETS BECOME LEGAL DOCUMENTS AND
ESTABLISH MAXIMUM AMOUNTS THAT CAN BE SPENT FOR SPECIFIED
PURPOSES.
-GOVERNMENTAL
REPORTING
REQUIRES
THAT
FINANCIAL
INFORMATION
INCLUDE
BUDGETARY
AS WELL
AS
ACTUAL
INFORMATION.
VARIANCES BETWEEN BUDGETED AND ACTUAL
AMOUNTS ARE DISCLOSED IN THE FINANCIAL STATEMENTS.
-GOVERNMENTS RECORD BUDGETS IN CERTAIN OF THEIR FUNDS,
INCLUDING THE GENERAL FUND WHICH IS USUALLY THE PRIMARY
GOVERNMENTAL FUND.
BUSINESS BUDGETING
-BUSINESS BUDGETS ARE USED PRIMARILY FOR MANAGEMENT
PLANNING AND CONTROL.
VARIANCES BETWEEN PLANNED AND
ACTUAL ACTIVITIES ARE OFTEN CALCULATED. HOWEVER, THE
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VARIANCES ARE USED PRIMARILY FOR INTERNAL PURPOSES AND
SELDOM ARE INCLUDED IN REPORTS TO OWNERS OR GOVERNMENTAL
AGENCIES.
3.
TYPES OF GOVERNMENTAL BUDGETS:
-OPERATING BUDGETS - BUDGETS PREPARED, APPROVED AND
ADOPTED FOR THE NEXT GOVERNMENTAL FISCAL PERIOD. THESE
GENERALLY RELATE TO THE GENERAL FUND AND SPECIAL REVENUE
FUNDS. ENTERPRISE AND INTERNAL SERVICE FUNDS (OFTEN CALLED
PROPRIETARY TYPE FUNDS) PREPARE BUDGETS. HOWEVER, UNLIKE
THE GOVERNMENTAL TYPE FUNDS, (E.G, GENERAL FUND AND SPECIAL
REVENUE FUNDS) THESE FUNDS DO NOT "BOOK THEIR BUDGETS."
PROPRIETARY FUNDS USE BUDGETS IN A
MANNER SIMILAR TO
BUSINESSES.
-CAPITAL BUDGETS
- BUDGETED AMOUNTS FOR EXPENDITURES
DURING THE YEAR FOR LONG-LIVED ASSETS.
THESE BUDGETS
INCLUDE
THE
PROPOSED
FINANCING
METHODS
FOR
THE
EXPENDITURES.
FINANCING SOURCES MIGHT INCLUDE CURRENT
TAXES, BOND ISSUES, MORTGAGE NOTES, ETC.
4.
BUDGETING APPROACH: MOST GOVERNMENTS USE THE OBJECT OF
EXPENDITURE APPROACH.
UNDER THIS APPROACH, EVERY
CATEGORY OF EXPENDITURE TO BE MADE AND THE AMOUNT
BUDGETED FOR EACH CATEGORY. CATEGORIES INCLUDE SUCH ITEMS
AS SALARIES (FOR EACH APPROVED POSITION), SUPPLIES, TRAVEL,
ETC.
OTHER APPROACHES INCLUDE BUDGETING BY PROGRAM AND ZERO
BASED BUDGETING.
5.
THE BUDGET CYCLE
A.
EXECUTIVE PREPARATION
B.
ENACTMENT BY GOVERNING BODY (LAW)
C.
BUDGET EXECUTION
D.
POST AUDIT AND EVALUATION
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6.
THE TYPICAL ACCOUNTS OF GOVERNMENTAL FUNDS, PARTICULARLY
FOR THE GENERAL AND SPECIAL REVENUE FUNDS INCLUDE:
A. BUDGETARY OR CONTROL ACCOUNTS
THESE ACCOUNTS ARE NOMINAL OR TEMPORARY ACCOUNTS THAT
COME INTO EXISTENCE AT THE BEGINNING OT THE YEAR, AND ARE
CLOSED AT THE END OF THE YEAR. THE ENCUMBRANCE AND
RESERVE
FOR
ENCUMBRANCE
ACCOUNTS
MAY
BE
REESTABLISHED AT THE BEGINNING OF THE NEXT YEAR.
ACCOUNTS WITH USUAL
DEBIT BALANCES
ACCOUNTS WITH USUAL
CREDIT BALANCES
ESTIMATED REVENUES
APPROPRIATIONS OR APPROVED
EXPENDITURES
(BUDGETARY FUND BALANCE)
ENCUMBRANCES
RESERVE FOR ENCUMBRANCES*
* THE RESERVE FOR ENCUMBRANCES MAY ALSO BECOME PART OF
THE FUND BALANCE IF IT IS NOT CLOSED AT THE END OF THE
PERIOD.
B.OPERATING STATEMENT ACCOUNTS
(REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE)
EXPENDITURES
OPERATIONS
CAPITAL
DEBT SERVICE
REVENUES
OTHER FINANCING USES
TRANSFERS OUT
OTHER FINANCING SOURCES
TRANSFERS IN
LONG-TERM DEBT PROCEEDS
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C. BALANCE SHEET ACCOUNTS
ASSETS
LIABILITIES
CASH
VOUCHERS PAYABLE
RECEIVABLES
DUE TO OTHER FUNDS
DUE FROM OTHER FUNDS
ACCRUED EXPENSES
INVESTMENTS
DEFERRED REVENUE
INVENTORIES
PREPAID ITEMS (PERHAPS)
FUND BALANCE (EQUITY)
UNRESERVED
RESERVED (MAY BE SEVERAL)
7.
THE BUDGET PROCESS
A.
B.
ESTABLISH THE DESIRED (REQUIRED) EXPENDITURE
LEVEL
1)
REVIEW THE PRIOR YEARS PROGRAM
2)
CONSIDER REVISIONS NEEDED BECAUSE OF USER
NEEDS--SAME SERVICES BUT AT DIFFERENT
LEVEL
a.
MORE WELFARE RECIPIENTS
b.
MORE HOUSES = MORE FIRE PROTECTION
c.
MORE PEOPLE = MORE POLICE PROTECTION
d.
MORE STREETS = MORE STREET REPAIRS
e.
MORE BUILDINGS = MORE MAINTENANCE
3)
CONSIDER COST CHANGES AND INFLATION FOR
SAME LEVEL OF SERVICE; E.G. SALARY CHANGES
4)
CONSIDER NEW SERVICES CITIZENS MIGHT WISH;
E. G. BRANCH LIBRARIES
ESTABLISH REVENUE PLAN
(ALTERNATIVE PHILOSOPHIES: (1) PAY AS YOU GO;
(2) REVENUE > EXPENDITURES; (3) REVENUES <
EXPENDITURES.
1)
ESTIMATE REVENUES WHICH ARE NOT
CONTROLLABLE (SALES TAX; LICENSE FEES;
FINES; ETC.)
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2)
SET PROPERTY TAX RATE TO ATTAIN DESIRED
REVENUE
BUDGETED REVENUE - OTHER (TYPE 1) REVENUE
------------------------------------------ASSESSED VALUE OF TAXABLE PROPERTY
AS ADJUSTED
=TAX RATE
THIS EXAMPLE DOES NOT WORK IN CALIFORNIA BECAUSE OF
PROPOSITION 13. THE CALIFORNIA METHOD FOR PROPERTY TAX IS TO
MULTIPLY THE ASSESSED VALUE OF PROPERTY BY THE FLAT MAXIMUM
RATE ALLOWED BY LAW (ABOUT 1%)
8.
BUDGETARY ACCOUNTING
A.
THE ACCOUNTING EQUATION
COMMERCIAL
A=L+(OE+R-E)
BUDGETARY ENTITIES (GOVERNMENTS)
A+ER=L+(FB+R-E+AP+RE-EN)
ER=ESTIMATED REVENUE
FB=FUND BALANCE
AP=APPROPRIATIONS
RE=RESERVE FOR ENCUMBRANCES
EN=ENCUMBRANCES
E =EXPENDITURES (NOT EXPENSES)
9.
BUDGETARY ACCOUNTING TRANSACTIONS:
A.
BUDGET ADOPTION
ESTIMATED REVENUE XX
APPROPRIATIONS
XX
FUND BALANCE
X
(NOTE THIS COULD HAVE BEEN RECORDED IN TWO ENTRIES)
B.
ENCUMBRANCES
ENCUMBRANCES
XX
RESERVE FOR ENC
XX
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C.
EXPENDITURES FOR ENCUMBRANCES (SEE PP88-89)
EXPENDITURES
XX
VOUCHERS PAYABLE
XX
AND
RESERVE FOR ENC
XX
ENCUMBRANCES
D.
REVENUES COLLECTED
CASH
E.
XX
REVENUES
XX
EXPENDITURES (UNENCUMBERED)
EXPENDITURES
CASH
10.
XX
XX
XX
RELATIONSHIP BETWEEN
CONTROL ACCOUNTS
AND
SUBSIDIARY ACCOUNTS
(REVIEW THE SPECIFIC EXAMPLES IN THE TEXT)
IN SUBSIDIARY ACCOUNTS, AMOUNTS ARE SHOWN BY REVENUE OR
EXPENDITURE CATEGORY ---REVENUE IS GENERALLY BY SOURCEEXPENDITURES ARE USUALLY BY FUNCTION (PROGRAM) SUCH AS
PUBLIC SAFETY, GENERAL GOVERNMENT, ETC. AND/OR BY OBJECT SALARIES, SUPPLIES, RENT, INTEREST, ETC.
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11.
CLASSIFICATIONS OF REVENUES AND EXPENDITURES
(RECOMMENDATIONS
OF
THE
NATIONAL
GOVERNMENT ACCOUNTING AND GASB.)
A.
COUNCIL
ON
REVENUES
(1)
BY FUND
(2)
BY SOURCE
TAXES, SPECIAL ASSESSMENTS, LICENSES &PERMITS,
INTERGOVERNMENTAL REVENUES, CHARGES FOR GOODS
AND
SERVICES,
FINES
AND
FORFEITURES,
MISCELLANEOUS.
B.
EXPENDITURES
(1)
BY FUND
(2)
BY FUNCTION OR PROGRAM
GENERAL GOVERNMENT, PUBLIC SAFETY, PUBLIC WORKS,
HEALTH & WELFARE, EDUCATION (SCHOOLS), URBAN
REDEVELOPMENT & HOUSING, ETC.
(3)
BY ORGANIZATIONAL UNIT
NO STANDARD CLASSIFICATIONS. WILSON AND HAY SHOW
POLICE DEPARTMENT, FIRE DEPARTMENT, CITY ATTORNEY,
CITY CLERK, ETC.
(4)
BY ACTIVITY (THIS IS FOR A SUBSET OF (3).
EXAMPLES FOR THE POLICE DEPARTMENT MIGHT INCLUDE
POLICE
ADMINISTRATION,
CRIME
CONTROL
AND
INVESTIGATIONS, TRAFFIC CONTROL, POLICE TRAINING,
ETC.
(5)
BY CHARACTER
THREE MAJOR CATEGORIES MOST OFTEN USED - CURRENT
OPERATIONS, CAPITAL OUTLAY, DEBT SERVICE.
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(6)
BY OBJECT (THIS
CLASSIFICATION)
IS
A
SUBSET
OF
THE
CHARACTER
CURRENT OPERATIONS - PERSONNEL SERVICES, SUPPLIES,
UTILITIES, OTHER SERVICES AND CHARGES
CAPITAL OUTLAY
IMPROVEMENTS
-
LAND,
BUILDINGS,
EQUIPMENT,
DEBT SERVICE - PRINCIPAL, INTEREST.
12.
BUDGETARY REPORTING (PRESENTED IN FUTURE CHAPTERS)
A.
BALANCE SHEET (P20 AND 180; AND PP 362-365)
B.
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN
FUND BALANCE (P26 AND 181; AND PP 366-367)
C.
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN
FUND BALANCE-BUDGET AND ACTUAL (P182; AND PP368-371)
D.
STATEMENT OF CASH FLOWS (PARTICULARLY FOR ENTERPRISE
FUND) (P 35; AND PP375-376)
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