In Governmental accounting, the budget is RECORDED in the books as an integral part of the accounting system. This allows budgeted amounts to be compared to actual amounts during the year and at year end.

PURPOSE: To record the total ESTIMATED REVENUES expected to be received during the year. The government is provided an estimate of what total revenues will be from various sources (taxes, grants, fines, fees, etc.). Assume it is $20,000,000. ENTRY: ESTIMATED REVENUES……$20,000,000 FUND BALANCE (UNRESERVED)….. $20,000,000

IN ADDITION Must also be updated for EACH TYPE of estimated revenue. This is a supplementary record which records the unique types of estimated revenues (taxes, license/permits, intergovernmental, etc.). Illustration 4-3 (page 130) Each of these entries are DEBITS Type of estimated revenue DRCRDR (CR) Est RevRevenue (actual)Balance $20,000,000 total (1)$20,000,000

FINALLY Also impact the budget entries because as they are recorded they are done so as follows: 1.Suppose cash of $12,000,000 is received in taxes. Cash…$12,000,000 Revenues…$12,000,000 But in the SUBSIDIARY LEDGER THE FOLLOWING ENTRY IS ALSO POSTED: DRCRDR (CR) Est RevRevenue (actual)Balance $20,000,000 est (from before) $12,000,000 actual (2) $8,000,000 est to be collected

SUM OF BALANCES OF REVENUES SUBSIDIARY LEDGER…$8,000,000 ESTIMATED REVENUES - REVENUES REVENUES TO BE COLLECTED $20,000,000 $12,000,000 $8,000,000

GENERAL FUND LEDGER Assets Liabilities Fund Balance Est Revenue $20M 20M SUBSIDIARY LEDGERS Tax Est RevOther Est Rev 5M (made up breakdown) 15M Cash 12M Revenues 12M 3M 5M + 3M = 8M $20M - 12M = 8M

PURPOSE: To record the total ESTIMATED EXPENDITURES expected to be incurred during the year. The government is provided an estimate of what total expenditures will be for all possible reasons. These are like the legally voted upon (enacted) estimated and authorized expenditures. Suppose for a year they are $19,000,000. ENTRY: FUND BALANCE (UNRESERVED)….$19,000,000 APPROPRIATIONS………………..$19,000,000

IN ADDITION Must also be updated for EACH TYPE of estimated expenditure. This is again a supplementary record which records the unique types of estimated expenditures (gen gov, public safety, highways/streets, etc.). Illustration 4-4 (pg 131) Type of estimated expenditure DR.DR.CR.CR (DR). EncumbranceExpendituresAppropriationsUnencumbered Balance $19,000,000 total These appropriations are CREDITS

GENERAL FUND LEDGER Assets Liabilities Fund Balance Est Revenue $20M 20M SUBSIDIARY LEDGERS Tax Est RevOther Est Rev 5M (made up breakdown) 15M Cash 12M Revenues 12M 3M 5M + 3M = 8M $20M - 12M = 8M Appropriation 19M Estimated expenditures (many of them) 19M IMPORTANT TO NOTICE Fund balance is left with $1,000,000 increase and nothing has even happened yet. 1M Thus its important to REVERSE BUDGETARY ENTRIES if statements needed to be drawn up in the middle of the year.

Are the MIDDLE STEP between approving expenditures (APPROPRIATIONS) and actually incurring them (EXPENDITURES). APPROPRIATIONS ENCUMBRANCESEXPENDITURES Arise because a budget is legally enacted by a legislature. Arise because purchase orders are completed or contracts are written up for purchased services. Arise because goods arrive, services are completed, etc.

Suppose that purchase orders are completed to purchase $5,000,000 worth of new office equipment. ENTRY: ENCUMBRANCES…..$5,000,000 RESERVE FOR ENCUMRBANCES….$5,000,000

Each encumbrance is then posted to the ENCUMBRANCES COLUMN of the Expenditures Subsidiary Ledger reducing the amount of unencumbered balance of appropriation available for expenditure. Type of estimated expenditure DR.DR.CR.CR (DR). EncumbranceExpendituresAppropriationsUnencumbered Balance $19,000,000 from before $5,000,000 $19,000,000 - $5,000,000 $14,000,000

GENERAL FUND LEDGER Assets Liabilities Fund Balance Est Revenue $20M 20M SUBSIDIARY LEDGERS Tax Est RevOther Est Rev 5M (made up breakdown) 15M Cash 12M Revenues 12M 3M 5M + 3M = 8M $20M - 12M = 8M Appropriation 19M Estimated expenditures (many of them) 19M 1M Encumbrance 5M Reserve for Encum 5M 14M

Suppose that the goods ordered previously for $5,000,000 are received and that they actually only cost $4,500,000 and that amount is paid in cash. ENTRY: Office Equipment Expenditure….$4,500,000 Cash……………………………$4,500,000 ALSO NEED TO REVERSE ENCUMRBANCE AT ITS ESTIMATED AMOUNT: Reserve for encumbrances…… $5,000,000 Encumbrances………………$5,000,000

The unencumbered balance is adjusted for any difference between the estimated expenditure (encumbrance) and the actual expenditure. In this case $5M - 4.5M = $500,000 Type of estimated expenditure DR.DR.CR.CR (DR). EncumbranceExpendituresAppropriationsUnencumbered Balance $19,000,000 from before $5,000,000 $4,500,000 ($5,000,000) $19M (a) -5M $14M -4.5M M +5M M

GENERAL FUND LEDGER Assets Liabilities Fund Balance Est Revenue $20M 20M SUBSIDIARY LEDGERS Tax Est RevOther Est Rev 5M (made up breakdown) 15M Cash 12M Revenues 12M 3M 5M + 3M = 8M $20M - 12M = 8M Appropriation 19M Estimated expenditures (many of them) 19M 1M Encumbrance 5M Reserve for Encum 5M Expenditure 4.5M 5M 5M remove encumbrance 4.5M enter expenditure 14.5M

SUM OF UNENCUMBERED BALANCE OF EXPENDITURES SUBSIDIARY LEDGER APPROPRIATIONS - EXPENDITURES + ENCUMBRANCES NET

SUM OF UNENCUMBERED BALANCE OF EXPENDITURES SUBSIDIARY LEDGER APPROPRIATIONS - EXPENDITURES + ENCUMBRANCES NET 14.5M 19M 4.5M 14.5M