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Chapter 3 Granof-5e 1 Issues of Budgeting and Control
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Budgets What’s budgeting? Budgeting is the process of allocating scarce resources among unlimited demand and includes planning, controlling, and the evaluation of (government) operations . Chapter 3 Granof-5e 2
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Budgets Purposes of Budgets 1.Ensure appropriate use of resources. 2.Provide a framework for use of resources 3.Obtain accountability objective 4.Measure compliance with law 5.Provide basis of financial planning 6.Provide a basis for performance evaluation Chapter 3 Granof-5e 3
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GASB and Budgets An annual budget should be adopted by every governmental unit. The accounting system should provide the basis for appropriate budgetary control Budgetary comparison statements or schedules should be presented as basic financial statements, or required supplementary information (RSI) for (1) the General Fund and (2) each major Special Revenue Fund that has a legally adopted budget. Chapter 3 Granof-5e 4
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Legally Enacted Budgets A legally enacted budget is an official dollars and cents plan of operation for a specific period of time. At a minimum, this plan should contain information about the types and amounts of authorized expenditures, the purposes of the expenditures, and the planned means of financing them. An approved budget represents management plans but legally enacted budgets are also laws in governments. Therefore, budgets play a far greater role in planning, controlling and evaluating government operations than in businesses . Chapter 3 Granof-5e 5
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Chapter 3 Granof-5e 6 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.                               Budgets in Governments
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Chapter 3 Granof-5e 7 Major types of Budgets Appropriation Budget Concerned with current operating revenues and expenditures . Capital Budget Focuses on the acquisition and construction of long term assets. Flexible Budget Contains alternative budget estimates based on varying levels of output Helps distinguish fixed and variable costs Most useful to business-type activities where level of activity depends on customer demand
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Chapter 3 Granof-5e 8 Current GASB Model Vs. Old Model Old model: governments reported only their amended budget. Current model: requires the actual results and both the original and final appropriated budgets.
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