Wiley Not-for-Profit GAAP 2015: Interpretation and Application of Generally Accepted Accounting Principles

17 IMPORTANCE OF BUDGETS TO A NOT-FOR-PROFIT

Perspective and Issues

Functions of the Budget

Steps for Preparation

Levels of Reserves

Responsibility for Budget Preparation

Monthly and Quarterly Budgets

Allocating an Annual Budget to Monthly or Quarterly Periods

Illustrative Expense Budget

Timely Interim Statements

Importance of Budget Comparison

Alternate Presentation

Variable Budget

Narrative Report on Deviations from Budget

Action by the Board

A Five-Year Master Plan

Suggested Procedures

Setting goals

Estimating costs

Plan for income

Illustrative Master Plan

Conclusion

PERSPECTIVE AND ISSUES

It is important that any potential financial problems of a not-for-profit organization be anticipated so that the board or management can take steps to solve these problems on a timely basis. A budget prepared by management and approved by the board is the principal tool that should be used. A budget also represents an opportunity to plan ahead for several years in an effort to foresee social and economic trends and their influence on the organization's programs. Reporting actual results in comparison to a budget should not be confused with financial reporting under GAAP. Not-for-profit organizations often adopt budget preparation methodologies that include some, but not all, GAAP requirements. For example, a budget may be prepared on a basis consistent with the accrual basis of accounting for most revenues and expenses. On the other hand, budgets prepared by not-for-profit organizations ...