Budgeting, Budgetary Accounting, and Budgetary Reporting

BUDGETING,
BUDGETARY
ACCOUNTING, AND
BUDGETARY
REPORTING
Chapter 4
LEARNING OBJECTIVES
 Understand budgetary accounting and reporting
practices and requirements
 Explain role of budget in governmental fund planning
and control
 Understand budgeting terminology, approaches, and
recommended practices
 Understand concept of budgetary control points
 Discuss basic procedures of preparing and adopting a
budget
 Understand differences between Budgetary Fund
Balance and GAAP Fund Balance
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BUDGETS
 In businesses—management plans
 In governments—management plans AND laws
 Control the activities authorized to carry out plans
 Prepare statement that permit comparison of actual results with budget and
evaluation of variances

MINIMUM BUDGET
INFORMATION
 Types and amounts of authorized expenditures
 Purposes for which expenditures are to be made
 Planned means for financing expenditures

GASB PRINCIPLES ADDRESS
BUDGETING
 Annual budget(s) be adopted by every governmental unit
 Accounting system provide basis for appropriate budgetary control
 Budgetary comparison statements (basic financial statements) or schedules
(other RSI) be presented for
 General Fund
 Major Special Revenue Funds with legally adopted budgets

ASSUMPTIONS ABOUT GF
BUDGET
 Annual budget adopted on modified accrual (GAAP) basis
 Appropriations are made for operating expenditures by function and for
capital outlay and debt service expenditures made directly in GF
 Budget does not include appropriations for interfund transfers—
assumes interfund transfers are separately authorized

B RECORDING THE BUDGET
(PAGE 124)
Estimated Revenues 427,000

Appropriations 423,000
Budgetary Fund Balance 4,000
As in the previous chapter, this entry is at summary level. To

control revenues and expenditures, detail must be maintained in
the subsidiary ledger (as in Chapter 3).

REVENUES LEDGER FORMAT
Taxes
Dr. (Cr.) Dr. (Cr.)
Date Estimated Revenues Revenues Balance
A B C D
Use of Each Column
A. Date of transaction
B. Records initial budget and changes in it
C. Records actual revenues
D. Reports positive balance when amount must still be collected;
negative balance when collections exceed budgeted amount

NOTES ABOUT THE REVENUES
LEDGER
 Controlled by Estimated Revenues and Revenues
 Balance is the difference between the budgetary account and the actual
account
 Sum of the balances in the Revenue Ledger accounts must equal the
difference between the Estimated Revenues account and the Revenues
account

EXPENDITURES LEDGER
FORMAT General Government
Dr. (Cr.)
Dr. (Cr.) (Cr.) Unencumbered
Dr. Expenditures
Date Encumbrances Appropriations Balance
A B C D E
Use of Each Column
A. Date of transaction
B. Records estimated amount for issuance of (debit) or receipt of (credit) order
C. Records actual expenditure
D. Records initial budget and changes to it
E. Reports positive balance when budget is over-expended;
negative balance when spending authority remains
NOTES ABOUT THE
EXPENDITURES LEDGER
 Unlike Chapter 3 where ledger was controlled only by Expenditures
account, Encumbrances and Appropriations added for additional control
 Appropriations added to provide overall control
 Encumbrances added to control orders made but not yet filled
 Balance =
Appropriations – Expenditures – Encumbrances

MAKING ADJUSTMENTS TO
THE BUDGET
 Assuming balanced budget is maintained, increase
in one functions appropriation requires decrease in
another
 Unbalanced adjustments
 Increase (decrease) in Appropriations (Estimated Revenues) requires
Budgetary Fund Balance to decrease
 Decrease (increase) in Appropriations (Estimated Revenues) requires
Budgetary Fund Balance to increase

B3 ADJUSTING THE BUDGET
(PAGE 128)

Some may be bothered by having the Appropriations account being both a

debit and a credit. However, you must consider the subsidiary ledger effects
demonstrated in the textbook. Some appropriations were increased; others
were decreased. That is why both the debit and credit are required.

RECORDING
ENCUMBRANCES
 Occurs when order is placed—for estimated amount
 Will be reversed when order is received—still for the estimated amount
 Actual amount—as demonstrated in Chapter 3—recorded in
Expenditures account

#3 RECORDING ENCUMBRANCES
(PAGE 129)
Encumbrances 30,000
Encumbrances Outstanding 30,000

#4 RECEIPT OF ORDER (PAGES 129–130)
#4a Reverse estimate
Encumbrances 30,000
#4b Record the Actual

Expenditures 29,900
Vouchers Payable 29,900

CLOSING ENTRIES AND
BUDGETARY ACCOUNTS
 Entries on pages 135 and 136 demonstrate modification of closing entry
from Chapter 3 to include budgetary accounts
 Separate entries on following slides demonstrate effect of budgetary
accounts in separate entries

C1-1 REVERSE BUDGET, NET OF
ADJUSTMENTS
Account balances represent initial budget plus changes and

reallocations made during the fiscal year.

C1-2 CLOSE ENCUMBRANCES
Encumbrances 20,000
Governments must make a choice in accounting for

encumbrances at year-end:
• Cancel outstanding orders—above entry completes this process
• Honor outstanding orders in following fiscal year—requires
• Special reporting in Fund Balance
• Reversing above entry at start of next fiscal year

REPORTING ENCUMBRANCES
IN FUND BALANCE
 Required only if outstanding orders will be honored in following fiscal
year
 May be reported as part of restricted, committed, or assigned fund
balance—depends on nature of funding for outstanding orders
 Cannot report encumbrances on face of Balance Sheet—must report
what outstanding orders are for

BUDGETARY BASES
 Used to prepare budget and maintain accounting
records
 Modified accrual basis (GAAP)
 Cash basis
 Revenues recognized when received

 Expenditures recognized when paid
 Encumbrances method—treat encumbrances as expenditures
 If non-GAAP basis used to maintain accounting

records, adjustments necessary at year-end for
reporting purposes
INTERIM BUDGETARY
REPORTING
 Revenues—includes actual revenues collected to date and estimates for
the rest of the year
 Expenditures—includes appropriations for the year, expenditures to
date, encumbrances outstanding at interim date, and amount available
for spending for each appropriation

BUDGETARY REPORTING IN
CAFR:
OPTIONS FOR PLACEMENT IN
REPORT
 Basic financial statement (BFS)—placed with
other Governmental Funds statements
 Required Supplementary Information (RSI)
schedule—after notes but part of minimum
external reporting

BUDGETARY REPORTING IN CAFR:
COLUMNS USED IN PRESENTATION
 Original budget
 Final budget
 Actual on a budgetary basis (if not GAAP,
reconciliation must be included in notes (if BFS) or
with schedule (if RSI)
 Most governments include optional Variance
column

NEXT FY—REESTABLISH
ENCUMBRANCES (PAGE 145)
Encumbrances 20,000
This entry reestablishes budgetary accounts for outstanding

orders. Necessary only if government is honoring outstanding
orders at end of previous fiscal year.

THE IMPORTANCE OF THE
GENERAL BUDGET
1) The general budget is no longer limited to financing the traditional
functions of the state such as security, justice, and others. Rather, its
impact extended to include all aspects of economic activity from
production and distribution, especially with the development of the
state’s role and its interference in the life of society, from
guardianship to welfare.
2) One of the most important sources of information useful for making
economic decisions and providing the necessary evidence for
research and studies.
3) The general budget affects and is affected by the style of the
political system in organizing and managing the state's public
finances, such as:
The policy of distributing expenditures and revenues to various
government agencies
The degree of centralization and decentralization in the state's financial
The importance of the general budget
4.It is an effective way to achieve a balance between the country's

expenditures and revenues
5. The budget has a central role in carrying out the planning function because
it includes:
 The diverse and enormous field of government activities
 The nature, quantity and quality of goods and services provided by the state

BUDGET OBJECTIVES
 Planning goals
 monitoring the spending needs of government units
 Allocation and distribution of resources and other sources of financing
 Coordination between government units
 Establish the schedule for implementation
 Coordination between the budget as a timetable and the state's
development plans

BUDGET OBJECTIVES
 Control Objectives:
 Measuring and monitoring the actual performance of
the program and government activities
 Control over the assets and properties of government
units
 Helping to reduce, control and rationalize government
spending
 Ensure compliance with government financial
regulations and laws.

BUDGET OBJECTIVES
 Economic objectives:
 Achieving economic stability through: limiting
inflation - limiting recession - reducing
unemployment.
 Supporting and stimulating development
through: Spending on sustainable development -
Providing subsidies to troubled sectors -
Supporting the most urgent investments by
exempting or reducing taxes and fees
BUDGET OBJECTIVES
 Social goals:
 Redistribute income
 Address the phenomenon of poverty
 Achieving health, educational and environmental
goals
 Limit some bad habits.

PRACTICAL STAGES OF
PREPARING FOR THE BUDGET
1- Budget preparation stage:
The various ministries and government departments estimate
their revenues and expenditures for a coming fiscal year.

The estimates are sent to the Ministry of Finance and National
Economy ((Department of General Budget Management)), and

then these estimates are discussed with officials in government
agencies, and then a proposed budget is drawn up.
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32
rights reserved.
PRACTICAL STAGES OF
PREPARING FOR THE BUDGET
2- The budget approval phase:
The proposed budget is presented to the Council of Ministers, which discusses or

amends the proposed budget if necessary, and in the event of approval, a decree will issue
the final approval of the budget.
 3- The budget execution phase:
The implementation of the budget starts from the date of its approval by the supreme
authority, then informs each ministry and departments of its final budget to work
accordingly
4. Control stage: There is pre-control - and accompanying control - and subsequent
control
PRINCIPLES OF THE GENERAL
BUDGET OF THE STATE OF QATAR
1. Annual Principle: the budget is prepared in the government sector for a full year
2. Unity Principle : The budget must include all aspects of the state’s activity, whether service, commercial,
economic, or investment activities, and the state’s expenditures and revenues in one document.
3. The commitment Principle : It requires that all government units be committed to the budget. (Not
included in the four basic rules of the State of Qatar)
4. Publication Principle: It stipulates that the budget must be published on all the various authorities in the
country. (Not included in the four basic rules of the State of Qatar)
5. All-Inclusion Principle: This article requires that all state expenditures and revenues be included in one
general budget without a set-off between them.
6. Principle of non-allocation: This article stipulates that it is not permissible to allocate certain revenues for
planning to cover certain expenses, or to deduct any expenses related to the collection of revenues.
7. Flexibility Principle: The budget project must be easy to implement by taking into account the various
possibilities that may face the implementation process during the year. (Not included in the four basic
rules of the State of Qata
TYPES OF BUDGETS IN THE STATE
OF QATAR
 Budget: It is the state’s general budget, and the state’s annual plan
is considered complete.
 Attached Budget: The budget of bodies and institutions whose

function is not linked to any of the ministries of the state. And it has
its own administrative system and does not have an independent
legal personality.
 Independent Budget: The budget for public institutions with

economic activity, which enjoys financial and administrative
independence and has an independent moral personality. Its
revenues and expenditures are independent of the state's general
budget.
35
GUIDELINES TO IMPLEMENTING
THE BUDGET IN QATAR'S
FINANCIAL REGULATIONS
Keep records related to the budget commitment in every government
unit, compare spending with the budget, and know the balance for each
item.
Transfer may be made in the same chapter with the approval of the
Minister of Finance.
Transferfrom one chapter to another or from one unit to another shall

be according to an Emiri decision.
Itis not permissible to exceed the approval of the budget or create

expenditures that are not included. In which.
TYPES OF BUDGETS IN THE
GOVERNMENT SECTOR
 Traditional Budgeting
Focuses on spending without looking at the output.

 Program based budgeting
Focuses on input and output.

 Planning, program based budgeting
 Zero Based Budgeting

1- THE TRADITIONAL METHOD: (OBJECT BUDGETING) CONTROLLING IS
GREATER THAN THE SERVICES THEMSELVES
This method is concerned with the supervisory aspect,
the focus is on the appropriations so that the budget comes in the form of
appropriations and items,

 and it is made sure by the financial control bodies that the disbursement is within
the limits of the listed appropriations and for the purposes assigned to them. And
that the disbursement procedures are done in a sound and legal manner.
This method concerned more with the supervisory side than with the services
themselves for which they were spent. Whereas, the classification on the basis of the
type of expense does not clarify whether the expenditures have achieved the goal of
their spending or are they just expenses that were paid and the matter ended.

FEATURES OF TRADITIONAL
BUDGETING
 Ease of access to estimates due to reliance on the results of the previous
period
 Achieving specific control goals, for example, not to exceed the actual
spending of the allocated appropriations, and determining the powers of
spending according to the terms and the safety of the disbursement
procedure.
 This method does not prevent him from linking his data to planning and
evaluation information.

CRITICISM OF TRADITIONAL
BUDGETING
 It depends on the budget of the previous year without looking at the
efficiency of the use of resources in the previous period.
 Excessive and misuse of resources occurs, especially before the end of the
fiscal year.
 Focusing on financial control excessively. Which leads to the difficulty of
analyzing the impact of government transactions on the national economy
of the state.
 It makes it easy for the administrators to do their internal work and
activities so that there is no assessment of their productivity.
 She neglects planning because she is most concerned with past events.
 It lacks the means to ensure the extent of achieving the targeted results.
 Accounting methods and rules are not used for performance appraisal and
cost benefit analysis.
PROGRAM BASED BUDGETING
In order to avoid shortcomings in the traditional budget, this budget was
introduced, which is based on attention and focus on the accomplishments that are
made,
as the budget is adopted to achieve certain goals and not just to purchase goods
and services. Then the program and performance budget is concerned with the
nature of the activities and work of government agencies more than the issue of
spending.
It sheds light on the work that was done or the service carried out to ensure that
the results achieved matched what was planned. Are the service or labor costs
appropriate or high?
CHARACTERISTICS AND
STRUCTURE OF PROGRAM AND
PERFORMANCE BUDGETING
 Programs: It means translating government work into specific
applicable programs.
 Performance: It means setting performance measures by which to
judge the soundness of these decisions.
 It needs continuous development measures at the organizational,
legislative or planning level.

ADVANTAGES PROGRAM,
 Focusing attention on what has been accomplished in terms of goals and programs,
not just what has been spent.
 The upper administrative levels made sure that the achievement was done according
to the previously approved plan.
 Continuous monitoring of the extent of implementation of government programs and
projects and leading the extent of efficiency
 Reducing the cost of public services, eliminating extravagance, planning for
manpower and resources needed for project implementation.
 Coordinating government programs and activities and preventing duplication in them
 Flexibility to distribute allocations to tasks and activities according to their relative
importance.
 Raise the efficiency of the accounting system and increase the reliability of financial
reports

CRITICISMS OF PROGRAMS ,
 It is complex as it requires calculations, plans, program descriptions,
and productivity measurement.
 Sometimes it is met with rejection by government units because many
government sector outputs and services are difficult to measure.
 Lack of trained personnel in the implementation stage
 The difficulty in linking the sub-budget of the administrative units with
the national goals and limiting it to the short term

3.PROGRAM PLANNING BASED
BUDGETING (PPBB)
This method emerged as a result of the need to link government programs
with the state’s general plan. This budget aims to link the appropriations with
the achievement of the planned goals and is considered a means for making
decisions related to the trade-offs between alternative and competing
programs to achieve specific goals. Thus, the planning function is given
priority over both the function of spending control or monitoring government
activity through the programs.
 Thus, it combines the three dimensions of the budget (planning,
implementation, and control)

3. PLANNING AND PROGRAMMING
This method emerged as a result of the need to link government programs with the state’s
general plan.
 it combines the three dimensions of the budget (planning, implementation, and control)
 This budget aims to link the appropriations with the achievement of the planned goals and
It is considered a means for making decisions related to the trade-offs between alternative
and competing programs to achieve specific goals.

Thus, the planning function is given priority over both the function of spending control or
monitoring government activity through the programs.



FACTORS IMPACTING ON ADOPTION
PLANNING AND PROGRAMMING
BUDGETING
Neglecting performance and program
budgeting of the long-term planning
component
The increasing importance of economic

Factors analysis and the introduction of scientific
methods in decision-making (cost-benefit
analysis - cost-effectiveness analysis)
The increase in the size of public expenditures in the

budget and the increase in their effects on the national
economy, prompting thinkers to call them to the
necessity of linking government plans and public
budgets and for the budget function to change to
become a tool for government direction and planning
for the entire national economy instead of being a tool
for monitoring and spending 47
DEFINITIONS
It is a plan to carry out government work
that includes programs and projects
prepared for implementation in the future
Administrative decision-making
system (linking long-term planning
with budget + analysis)
A management system that provides

information to decision-makers to make
sound decisions and achieve goals
efficiently, effectively and satisfying
their needs
48
THE CHARACTERISTICS OF PLANNING AND
PROGRAMMING BUDGETING
1- Planning
A long-term plan (10 or 15 years) shall be developed that includes

outlines (major programs)
Then elaborate medium-term plans (called sub-programs) for a

period of 5 years
The program is divided into short-term annual plans (activities).
Therefore, it is necessary to define = objectives + estimate

capabilities + determine the implementation stages + estimate the
time required for completion + make the necessary adjustments
for the deviations that appear during implementation
49
THE CHARACTERISTICS OF
PLANNING AND PROGRAMMING
BUDGETING
 Raising the efficiency and effectiveness of management (the best results with the optimal
use of resources and the lowest costs)
 Improving and rationalizing government decision-making
 Strengthening objective oversight of project implementation through follow-up reports
 Strengthening the relationship between the plan and the budget and between planning and
general budget agencies
 Coordination between the work of the ministries and the prevention of duplication and
overlap between projects
 Open in Google Translate
50
CRITICISM OF PLANNING AND
PROGRAMMING BUDEGETING
 Difficulty setting goals for all government agencies
 High financial costs required to implement them
 You need a large amount of information, which creates
problems in classifying and studying its contents
 Difficulty determining returns for some projects (may
be intangible)
4.ZERO-BASED BUDGETING

A recent trend has emerged in preparing the budget focusing on how to
achieve goals and provide means for assessing the effects of funding
levels due to:
Budgeting planning and programming (PPB)has faced some difficulties
upon implementation and due to its lack of interest in setting priorities

among new programs.
 PPB is not concerned with evaluating current programs.

ZERO-BASED BUDGET
 It is based on the principle that a comprehensive review and evaluation of all programs and
projects implemented by government agencies should be conducted
 The administrative director must present the justifications and studies that support his old
programs as if they were new programs and request approval for their implementation, as he is
required to justify all his programs starting from the starting point (base zero)
 It requires that the administrative director submit all necessary documents, documents and
studies showing the importance of each program, the extent of its need, the costs required for its
implementation, the levels of spending and the expected returns from it, in order for the decision
to be taken to agree to continue its implementation and allocate the necessary funds for it in the
next fiscal year or the decision not to approve the suspension of its implementation Or cancel it
and not allocate funds for it 53

ADVANTAGES OF ZERO-
BASED BUDGET
 Improving and rationalizing the decision-making process
regarding the distribution of financial resources in the general

budget for several reasons, including:
 It goes beyond formal censorship to objective censorship
 Clarity of specific objectives - relying on planning
 Benchmarking - Cost-benefit analysis and cost-effectiveness
analysis of each alternative

CRITICISMS OF THE ZERO-
BASED BUDGET
 Unavailability of qualified personnel to apply it
 Lack of sufficient data for some programs and projects
 Fear of the name of the zero budget (a source of threat to pressure
groups)
 Difficulty subjecting all programs and projects to the requirements of the
zero budget (previous obligations of the state, including loans, subsidies,

social security programs and insurances, as it is difficult to cancel them)

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BUDGETING,

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Estimated Revenues 427,000

As in the previous chapter, this entry is at summary level. To

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Appropriations – Expenditures – Encumbrances

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Estimated Revenues 4,000

Some may be bothered by having the Appropriations account being both a

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#4b Record the Actual

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Account balances represent initial budget plus changes and

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Governments must make a choice in accounting for

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 Revenues recognized when received

 If non-GAAP basis used to maintain accounting

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This entry reestablishes budgetary accounts for outstanding

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4.It is an effective way to achieve a balance between the country's

© 2014 Pearson Education, Inc. All rights reserved. 27

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© 2014 Pearson Education, Inc. All rights reserved. 29

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The various ministries and government departments estimate

their revenues and expenditures for a coming fiscal year.

Economy ((Department of General Budget Management)), and

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The proposed budget is presented to the Council of Ministers, which discusses or

 Attached Budget: The budget of bodies and institutions whose

 Independent Budget: The budget for public institutions with

Transferfrom one chapter to another or from one unit to another shall

Itis not permissible to exceed the approval of the budget or create

Focuses on spending without looking at the output.

Focuses on input and output.

 Zero Based Budgeting

© 2014 Pearson Education, Inc. All rights reserved. 37

This method is concerned with the supervisory aspect,

appropriations and items,

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This method emerged as a result of the need to link government programs