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Lecture note Government and not-for-profit accounting: Concepts and practices (7/e) – Chapter 3: Issues of budgeting and controls

Chapter 3 - Issues of budgeting and controls. In this chapter, the learning objectives are: Key purposes of budgets, need for more than one type of budget, various ways of classifying expenditures, benefits of performance budgets, key phases of the budget cycle, limitations of budget-to-actual comparisons, how an encumbrance system prevents overspending. | Chapter 3 Issues of Budgeting and Controls © 2016 John Wiley & Sons, Inc. All rights reserved. 1 Thoughts to Ponder: Chapter 3 “A budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another.” - President Barack Obama “Every family in America knows they have to do a budget. Every small business in America knows they have to do a budget. Every local government, every state, knows they have to do a budget.” - Speaker John Boehner © 2016 John Wiley & Sons, Inc. All rights reserved. 2 Learning Objectives Key Purposes of Budgets Need for more than one type of budget Various ways of classifying expenditures Benefits of performance budgets Key Phases of the Budget cycle Limitations of budget-to-actual comparisons How an encumbrance system prevents overspending © 2016 John Wiley & Sons, Inc. All rights reserved. 3 Key Purposes of Budgeting Planning Controlling and . | Chapter 3 Issues of Budgeting and Controls © 2016 John Wiley & Sons, Inc. All rights reserved. 1 Thoughts to Ponder: Chapter 3 “A budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another.” - President Barack Obama “Every family in America knows they have to do a budget. Every small business in America knows they have to do a budget. Every local government, every state, knows they have to do a budget.” - Speaker John Boehner © 2016 John Wiley & Sons, Inc. All rights reserved. 2 Learning Objectives Key Purposes of Budgets Need for more than one type of budget Various ways of classifying expenditures Benefits of performance budgets Key Phases of the Budget cycle Limitations of budget-to-actual comparisons How an encumbrance system prevents overspending © 2016 John Wiley & Sons, Inc. All rights reserved. 3 Key Purposes of Budgeting Planning Controlling and Administering Reporting and evaluating © 2016 John Wiley & Sons, Inc. All rights reserved. 4 Importance of government budgets The General Fund and special revenue funds usually require a legally adopted budget before the government can collect revenues from taxes and other sources and incur expenditures. Severe penalties may exist for failure to comply with the budget, so it is imperative that the accounting system facilitate accounting for the budget as well as all other operating transactions. © 2016 John Wiley & Sons, Inc. All rights reserved. 5 Major types of Budgets Appropriation Budget Master budget Monitors current or operating fund (i.e. general fund) Typically covers one operating cycle Revenue and Other Support Revenues are earned from the sale of goods and services and the receipt of contributions and grants. Support refers to just contributions and grants. Expenses represent the resources that an organization uses up in carrying on its activities. A surplus or profit is the .