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Date Submitted: 01/26/2014 01:38 PM
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...