Wiley Not-for-Profit GAAP 2017

17Importance of Budgets to a Not-for-Profit

1. Perspective and Issues
2. Functions of the Budget
3. Steps for Preparation
   1. Levels of Reserves
   2. Responsibility for Budget Preparation
4. Monthly and Quarterly Budgets
   1. Allocating an Annual Budget to Monthly or Quarterly Periods
   2. Illustrative Expense Budget
5. Timely Interim Statements
   1. Importance of Budget Comparison
   2. Alternate Presentation
   3. Variable Budget
   4. Narrative Report on Deviations from Budget
   5. Action by the Board
6. A Five-Year Master Plan
   1. Suggested Procedures
   2. Illustrative Master Plan
7. 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 often do not include depreciation or ...