Role of budgets in government accounting

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Role of budgets in government accounting
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In the textbooks,

• Budgets are described as part of planning and
  control processes.
• Defined as a detailed plan for the acquisition
  and use of financial and other resources over a
  specified time period. from Garrison and Noreen

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Budgets

• are a vehicle for communicating. managements
  plans.
• are a means for allocating and authorizing the
  use of resources.
• a way to formalize planning efforts.
• to coordinate activities.
• to avoid bottlenecks.

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So what happens when people observe the budget
process at real organizations?

• The absent budget
• The floating budget
• The ironclad budget
• The dont rock the boat budget

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So what do researchers do when faced with this
sort of behavior?

• Search for theories to explain
• 1) People are rational, all knowing, sensible
  individuals.
• Satisficers
• Heuristics
• Rituals
• Unstated rules

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Role of budgets in government are unique

• Budgets are legal documentsrevenues can only be
  spent in accordance with the appropriations
  process.
• Budgets are a formal part of the financial
  reporting processcomparison is required part of
  CAFR
• Purchases are viewed as legal commitments and
  encumbered.

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General fund account structure

• Balance sheet accounts (permanent)
• Current assets (debit)
• Current liabilities (credit)
• Fund balance
• Reserved (Credit)
• Unreserved
• Designated (credit)
• Undesignated (credit)

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Accounts that are closed at the end of the year

• Nominal (activity) accounts
• Revenue (credit)
• Expenditures (debit)
• Other financial sources control accounts
• Transfers in (credit)
• Long-term debt proceeds (credit)
• Other financial uses control accounts
• Transfers out (debit)

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Accounts that are closed at the end of the year

• Budgetary control
• Estimated revenues (debit)
• Appropriates control (credit)
• Est. other financing sources (debit)
• Est. other financing uses (credit)
• Encumbrances (debit)
• Budgetary fund balance reserved for encumbrances
  (credit)
• Budgetary fund balance (debit or credit)

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Record the budgets

• Est. revenues (dr) 1,350,000
• Budgetary fund balance (cr) 1,350,000
• Subsidiary ledger
• Taxes xxx
• Licenses and permits xxx
• Misc. revenue xxx

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Budgeted expenditures

• Budgetary Fund balance 1,300,000
• Appropriations
  1225500
• Est. other financing uses 74500

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Encumbrances

• Contract is given to purchase 500,100
• Encumbrances 500100
• Budget F/Breserve for
• encumbrances 500100

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Actual purchases cost 492,300

• 1st reverse the encumbrance
• Budget F.B. reserve for enc. 492,300
• Encumbrances
  492,300
• 2nd record the expenditure
• Expenditures 492,300
• Accounts payable 492, 300