Ch 3 Notes

Ch 3 - Issues of Budgeting and Control

What are the Key Purposes of Budgets?

1. Planning:

- includes programming (determining activities entity will undertake)

- resource acquisition

- resource allocation

concerned with specifying the type, quantity, and quality of services that will be provided to constituents; estimating service costs; determining how to pay for the services

2. Controlling and administering:

- managers use budgets to monitor resource flows and point to the need for operational adjustments

- legislative boards use budgets to impose spending authoring over executives, who in turn use them to impose authority over subordinates

3. Reporting and evaluating:

- budget-to-actual comparisons reveal whether revenue and spending mandates were carried out

- facilitate assessments of efficiency and effectiveness

Why is More than One Type of Budget Necessary?

- well-managed govt/NFP should prepare budgets for varying periods of time from multiple perspectives:

- include appropriation budgets: concerned mainly with current operating revenues/expenditures (1 year)

- current/operating budget covers the general fund, almost always an appropriation budget

- operating budget must, by law, be balanced

- govts may require that appropriation budgets also be developed and approved for special revenue, debt service, or capital project funds, in addition to the general fund

- capital budget: focus on acquisition and construction of long-term assets

- typically covers multiple years (up to 5)

- concentrates on construction and acquisition of long-lived assets such as land, buildings, roads, bridges, major equipment

- is a plan setting forth when specific capital assets will be acquired and how they’ll be financed

- legislators sometimes more extravagant with capital than operating resources b/c can be debt-financed, but there are additional operating costs with new long-term assets

- flexible budgets: relate costs...