in governmental accounting, the budget is recorded in the books as an integral part of the...
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In Governmental accounting, the budget is RECORDED in the booksas an integral part of the accounting system.
This allows budgeted amounts to be compared to actualamounts during the year and at year end.
PURPOSE: To record the total ESTIMATED REVENUES expectedto be received during the year.
The government is provided an estimate of what total revenueswill be from various sources (taxes, grants, fines, fees, etc.). Assumeit is $20,000,000.
ENTRY:
ESTIMATED REVENUES……$20,000,000FUND BALANCE (UNRESERVED)….. $20,000,000
IN ADDITION
Must also be updated for EACH TYPE of estimated revenue. This is a supplementary record which records the unique types of estimatedrevenues (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
FINALLY
Also impact the budget entries because as they are recorded they are done soas follows:
1. Suppose cash of $12,000,000 is receivedin taxes.
Cash…$12,000,000Revenues…$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)
$12,000,000 actual (2) $8,000,000 est to be collected
SUM OF BALANCES OF
REVENUES SUBSIDIARY
LEDGER…$8,000,000
ESTIMATED REVENUES
-
REVENUES------------------------------------REVENUES TO BE COLLECTED
$20,000,000
$12,000,000
$8,000,000
GENERAL FUNDLEDGER
Assets Liabilities
Fund BalanceEst Revenue
$20M 20M
SUBSIDIARY LEDGERS
Tax Est Rev Other Est Rev
5M(madeupbreakdown)
15M
Cash
12M
Revenues
12M
12M
3M
5M + 3M = 8M
$20M - 12M = 8M
PURPOSE: To record the total ESTIMATED EXPENDITURES expectedto be incurred during the year.
The government is provided an estimate of what total expenditureswill 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)….$19,000,000APPROPRIATIONS………………..$19,000,000
IN ADDITION
Must also be updated for EACH TYPE of estimated expenditure. This is again a supplementary record which records the unique types of estimatedexpenditures (gen gov, public safety, highways/streets, etc.). Illustration 4-4 (pg 131)
Type of estimated expenditure
DR. DR. CR. CR (DR).Encumbrance Expenditures Appropriations Unencumbered
Balance$19,000,000 total
$19,000,000 total
These appropriations are CREDITS
GENERAL FUNDLEDGER
Assets Liabilities
Fund BalanceEst Revenue
$20M 20M
SUBSIDIARY LEDGERS
Tax Est Rev Other Est Rev
5M(madeupbreakdown)
15M
Cash
12M
Revenues
12M
12M
3M
5M + 3M = 8M
$20M - 12M = 8M
Appropriation
19M
19M
Estimated expenditures (many ofthem)
19M
IMPORTANT TO NOTICE
Fund balance is left with $1,000,000 increase and nothing has even happenedyet.
1M
Thus its important to REVERSE BUDGETARYENTRIES if statements needed to be drawnup in the middle of the year.
Are the MIDDLE STEP between approving expenditures (APPROPRIATIONS)and actually incurring them (EXPENDITURES).
APPROPRIATIONS ENCUMBRANCES EXPENDITURES
Arise because a budget
is legally enacted by
a legislature.
Arise because purchaseorders are completed orcontracts are writtenup for purchased services.
Arise becausegoods arrive,services are completed,etc.
Suppose that purchase orders are completed to purchase $5,000,000worth of new office equipment.
ENTRY:
ENCUMBRANCES…..$5,000,000RESERVE FOR ENCUMRBANCES….$5,000,000
Each encumbrance is then posted to the ENCUMBRANCES COLUMNof the Expenditures Subsidiary Ledger reducing the amountof unencumbered balance of appropriation available for expenditure.
Type of estimated expenditure
DR. DR. CR. CR (DR).Encumbrance Expenditures Appropriations Unencumbered
Balance$19,000,000 from before$5,000,000 $19,000,000
- $5,000,000
$14,000,000
GENERAL FUNDLEDGER
Assets Liabilities
Fund BalanceEst Revenue
$20M 20M
SUBSIDIARY LEDGERS
Tax Est Rev Other Est Rev
5M(madeupbreakdown)
15M
Cash
12M
Revenues
12M
12M
3M
5M + 3M = 8M
$20M - 12M = 8M
Appropriation
19M
19M
Estimated expenditures (many ofthem)
19M
1M
Encumbrance
5M
Reserve for Encum
5M
5M
14M
Suppose that the goods ordered previously for $5,000,000 are receivedand that they actually only cost $4,500,000 and that amount is paid incash.
ENTRY: Office Equipment Expenditure….$4,500,000Cash……………………………$4,500,000
ALSO NEED TO REVERSE ENCUMRBANCE AT ITS ESTIMATED AMOUNT:
Reserve for encumbrances…… $5,000,000Encumbrances………………$5,000,000
The unencumbered balance is adjusted for any differencebetween the estimated expenditure (encumbrance) and theactual expenditure. In this case $5M - 4.5M = $500,000
Type of estimated expenditure
DR. DR. CR. CR (DR).Encumbrance Expenditures Appropriations Unencumbered
Balance$19,000,000 from before$5,000,000 $4,500,000
($5,000,000)
$19M (a) -5M ------------$14M -4.5M ------------- 9.5M +5M ------------14.5M
GENERAL FUNDLEDGER
Assets Liabilities
Fund BalanceEst Revenue
$20M 20M
SUBSIDIARY LEDGERS
Tax Est Rev Other Est Rev
5M(madeupbreakdown)
15M
Cash
12M
Revenues
12M
12M
3M
5M + 3M = 8M
$20M - 12M = 8M
Appropriation
19M
19M
Estimated expenditures (many ofthem)
19M
1M
Encumbrance
5M
Reserve for Encum
5M
Expenditure
4.5M4.5M
5M5M
5M
5M remove encumbrance4.5Menterexpenditure
14.5M
SUM OF UNENCUMBERED
BALANCE OF EXPENDITURES
SUBSIDIARY LEDGER
APPROPRIATIONS
-EXPENDITURES +ENCUMBRANCES------------------------------------NET
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