Budgeting Basics and Beyond

24.4. Government Budgets and Accounting Bases

Profit, if any, accrues to the benefit of the particular governmental or institutional unit only. Budgets are adopted and recorded in the accounts of the related fund. Encumbrances, which are contractual obligations, are given effect in some government funds.

Budgetary accountability differs from for-profit accounting in that budgetary amounts are actually recorded in the accounts of a fund. Recording the budgetary balances in the accounts has a dual effect. The control aspect of the budgetary function is stressed, and recognition is given to the legal foundations of the budget.

The need for budgetary recording in the accounts is consistent with the responsibility focus of fund accounting. The concern is for performance in terms of authority to act. Recording of both the budget and actual transactions helps to allocate responsibility.

Government funds (except for proprietary funds and trust and agency funds) use the modified accrual accounting basis. Revenue is recognized when it becomes available and measurable. Expenditures are recognized in the period in which the liability is incurred, except for:

• Inventories of materials and supplies, which may be considered expenditures either when purchased or used

• Interest on general long-term debt, which is recognized when due

• Use of encumbrances

Government Recordkeeping for Budget Accountability

The entry to record the adoption of a budget is:

Estimated Revenues	70,000,000
Fund Balance	200,000 ...