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Chapter 4 Budgeting, Budgetary Accounting and Budgetary Reporting

Chapter 4 Budgeting, Budgetary Accounting and Budgetary Reporting. In Governmental accounting, the budget is RECORDED in the books as an integral part of the accounting system. This allows budgeted amounts to be compared to actual amounts during the year and at year end.

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Chapter 4 Budgeting, Budgetary Accounting and Budgetary Reporting

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  1. Chapter 4 Budgeting, Budgetary Accounting and Budgetary Reporting

  2. In Governmental accounting, the budget is RECORDED in the books as an integral part of the accounting system. This allows budgeted amounts to be compared to actual amounts during the year and at year end. BUDGETARY ACCOUNTS 1. Estimated Revenues 2. Appropriations 3. Encumbrances

  3. 1. Estimated Revenues

  4. Estimated Revenues PURPOSE: To record the total ESTIMATED REVENUESexpected to be received during the year. The government is provided an estimate of what total revenues will be from various sources (taxes, grants, fines, fees, etc.). Assume it is $20,000,000. ENTRY: ESTIMATED REVENUES……$20,000,000 FUND BALANCE (UNRESERVED)….. $20,000,000

  5. 1. Estimated Revenues IN ADDITION Subsidiary Ledgers Must also be updated for EACH TYPE of estimated revenue. This is a supplementary record which records the unique types of estimated revenues (taxes, license/permits, intergovernmental, etc.). Illustration 4-3 (page 130) Each of these entries are DEBITS Type of estimated revenue DR CR DR (CR) Est Rev Revenue (actual) Balance $20,000,000 total (1) $20,000,000

  6. 1. Estimated Revenues FINALLY Real Revenues Also impact the budget entries because as they are recorded they are done so as follows: 1. Suppose cash of $12,000,000 is received in taxes. Cash…$12,000,000 Revenues…$12,000,000 But in the SUBSIDIARY LEDGER THE FOLLOWINGENTRY IS ALSO POSTED: DR CR DR (CR) Est Rev Revenue (actual) Balance $20,000,000 est (from before) $8,000,000 est to be collected $12,000,000 actual (2)

  7. 1. Estimated Revenues Control Relationship ESTIMATED REVENUES - REVENUES ------------------------------------ REVENUES TO BE COLLECTED SUM OF BALANCES OF REVENUES SUBSIDIARY LEDGER…$8,000,000 = $20,000,000 $12,000,000 $8,000,000

  8. GENERAL FUND LEDGER SUBSIDIARY LEDGERS Assets Liabilities Cash 12M Revenues 12M Tax Est Rev Other Est Rev Est Revenue Fund Balance 5M (made up breakdown) 15M 20M 12M $20M $20M - 12M = 8M 3M 5M + 3M = 8M

  9. 2. Appropriations

  10. Appropriations PURPOSE: To record the total ESTIMATED EXPENDITURES expected to be incurred during the year. The government is provided an estimate of what total expenditures will be for all possible reasons. These are like the legally voted upon (enacted) estimated and authorized expenditures. Suppose for a year they are $19,000,000. ENTRY: FUND BALANCE (UNRESERVED)….$19,000,000 APPROPRIATIONS………………..$19,000,000

  11. 2. Appropriations IN ADDITION Subsidiary Ledgers Must also be updated for EACH TYPE of estimated expenditure. This is again a supplementary record which records the unique types of estimated expenditures (gen gov, public safety, highways/streets, etc.). Illustration 4-4 (pg 131) These appropriations are CREDITS Type of estimated expenditure DR. DR. CR. CR (DR). EncumbranceExpendituresAppropriations Unencumbered Balance $19,000,000 total $19,000,000 total

  12. IMPORTANT TO NOTICE GENERAL FUND LEDGER SUBSIDIARY LEDGERS Fund balance is left with $1,000,000 increase and nothing has even happened yet. Assets Liabilities Cash Estimated expenditures (many of them) 12M Thus its important to REVERSE BUDGETARYENTRIES if statements needed to be drawn up in the middle of the year. 19M Appropriation Revenues 19M 12M Tax Est Rev Other Est Rev Est Revenue Fund Balance 5M (made up breakdown) 15M 20M 12M $20M 19M 1M $20M - 12M = 8M 3M 5M + 3M = 8M

  13. 3. Encumbrances

  14. Encumbrances Are the MIDDLE STEP between approving expenditures (APPROPRIATIONS) and actually incurring them (EXPENDITURES). ENCUMBRANCES EXPENDITURES APPROPRIATIONS Arise because purchase orders are completed or contracts are written up for purchased services. Arise because goods arrive, services are completed, etc. Arise because a budget is legally enacted by a legislature.

  15. 3. Encumbrances Suppose that purchase orders are completed to purchase $5,000,000 worth of new office equipment. ENTRY: ENCUMBRANCES…..$5,000,000 RESERVE FOR ENCUMRBANCES….$5,000,000

  16. 3. Encumbrances Subsidiary ledgers Each encumbrance is then posted to the ENCUMBRANCES COLUMN of the Expenditures Subsidiary Ledger reducing the amount of unencumbered balance of appropriation available for expenditure. Type of estimated expenditure DR. DR. CR. CR (DR). EncumbranceExpendituresAppropriations Unencumbered Balance $19,000,000 from before $19,000,000 $5,000,000 - $5,000,000 $14,000,000

  17. Encumbrance Reserve for Encum GENERAL FUND LEDGER SUBSIDIARY LEDGERS 5M 5M Assets Liabilities Cash Estimated expenditures (many of them) 12M 19M Appropriation Revenues 5M 19M 12M 14M Tax Est Rev Other Est Rev Est Revenue Fund Balance 5M (made up breakdown) 15M 20M 12M $20M 19M 1M $20M - 12M = 8M 3M 5M + 3M = 8M

  18. Expenditures Suppose that the goods ordered previously for $5,000,000 are received and that they actually only cost $4,500,000 and that amount is paid in cash. Office Equipment Expenditure….$4,500,000 Cash……………………………$4,500,000 ENTRY: ALSO NEED TO REVERSE ENCUMRBANCE AT ITS ESTIMATED AMOUNT: Reserve for encumbrances…… $5,000,000 Encumbrances………………$5,000,000

  19. 3. Encumbrances Subsidiary ledgers The unencumbered balance is adjusted for any difference between the estimated expenditure (encumbrance) and the actual expenditure. In this case $5M - 4.5M = $500,000 Type of estimated expenditure DR. DR. CR. CR (DR). EncumbranceExpendituresAppropriations Unencumbered Balance $19,000,000 from before $19M (a) -5M ------------ $14M -4.5M ------------- 9.5M +5M ------------ 14.5M $5,000,000 $4,500,000 ($5,000,000)

  20. Encumbrance Reserve for Encum GENERAL FUND LEDGER SUBSIDIARY LEDGERS 5M 5M 5M 5M Assets Liabilities Expenditure Cash 4.5M Estimated expenditures (many of them) 4.5M 12M 19M 5M Appropriation Revenues 5M remove encumbrance 4.5M enter expenditure 19M 12M 14.5M Tax Est Rev Other Est Rev Est Revenue Fund Balance 5M (made up breakdown) 15M 20M 12M $20M 19M 1M $20M - 12M = 8M 3M 5M + 3M = 8M

  21. 2. Appropriations and 3. Encumbrances Control Relationship APPROPRIATIONS - EXPENDITURES + ENCUMBRANCES ------------------------------------ NET SUM OF UNENCUMBERED BALANCE OF EXPENDITURES SUBSIDIARY LEDGER =

  22. 2. Appropriations and 3. Encumbrances Control Relationship 19M APPROPRIATIONS - EXPENDITURES + ENCUMBRANCES ------------------------------------ NET SUM OF UNENCUMBERED BALANCE OF EXPENDITURES SUBSIDIARY LEDGER = 4.5M 14.5M 14.5M

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