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Ives_SM_ch03 - 1Chapter 3 End of Chapter Materials...

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1Chapter 3 End of Chapter Materials Solutions REVIEW QUESTIONS Q3-1 A budget is a formal estimate of the resources that an organization plans to expend, for a given purpose or over a given period, and the proposed means of acquiring these resources. It informs the reader of what activities the organization plans to undertake and how the organization expects to finance these activities. In addition to serving as a framework for operations, the budget often acts as a legal document for certain types of organizations, principally governmental units. Q3-2 State and local governments prepare operating budgets, capital budgets, and cash budgets, also referred to as cash forecasts. Q3-3 Approaches to budget preparation include object-of-expenditure budgeting, performance budgeting, planning-program budgeting, and zero-based budgeting. The object of expenditure approach is the most common in practice. Q3-4 A cash forecast is a plan of the actual monies expected to be received and expended during a particular period. It assists the smooth functioning of the organization by enabling the organization to anticipate cash shortages and surpluses before they occur. As a result, the organization can obtain more favorable interest rates than an organization that borrows or invests on a "crash" basis. Q3-5 The steps in preparing a budget are: 1. Prepare budgetary policy guidelines. 2. Prepare a budget calendar. 3. Prepare and distribute budget instructions. 4. Prepare revenue estimates. 5. Prepare departmental (or program) expenditure requests: a. Personal services work sheet b. Travel work sheet c. Operating expense work sheet d. Equipment work sheet 6. Prepare nondepartmental expenditure and interfund transfer requests. 7. Prepare a capital outlay request summary (if appropriate) 8. Consolidate departmental expenditure requests, nondepartmental expenditure and interfund transfer requests, capital outlay requests and revenue estimates. Submit to the CEO for review and revision. 9. Prepare the budget document. 10. Present the budget document to the legislative body. 11. Record the approved budget in the accounts. 12. Determine the property tax (millage) rate. 3-1
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Q3-6 Types of supplementary information that should be included with budget requests are: a. Departmental budget request worksheets b. Departmental work programs c. Pro forma balance sheets for each fund, as of the beginning and the end of the budget year d. A cash forecast e. A schedule of interest payments, sinking fund contributions, and bond issues and retirements Any three of these could be listed. Q3-7 In addition to copies of forms and worksheets to be used, a set of budget instructions should contain the following: 1. A budget calendar, 2. A copy of the budgetary policy guidelines, 3. A statement summarizing the organization's anticipated fiscal condition for the following year, 4. A statement of specific policies to be followed when preparing expenditure requests, 5. A set of inflationary guidelines to be used in estimating future costs of equipment, supplies, etc., 6.
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