Government and not-for-profit budgets are far more important than those for businesses because they are expressions of public policy and often carry the authority of law, preventing public officials from spending outside their budgetary authority. The increased importance of budgets is reflected in government financial reports by a required report comparing budgeted and actual amounts.
Governments and not-for-profits are governed mainly by their budgets, not by the marketplace. Revenues and expenditures are controlled through the budgetary process. The government’s revenues may be determined by legislature, so they aren’t subject to competition like in for-profit. Not-for-profit revenues aren’t established by legal mandate, but are obtained from contributions, dues, tuition, or user charges, unlike the sales of a business.
Government and not-for-profit budgets are very important because they are the culmination of the political process and contains most of the organization’s important decisions. The budget determines which constituents give to the entity and which receive, which activities are supported and which are assessed. The force of law backs government budgets and officials use it to guide to oversee spending. Constituents want assurance that spending has not exceeded authorized amounts and that revenues and expenditure estimates were reliable. The budget is used as a control device and complements the accounting and reporting system.
It is also common for state agencies to be given the responsibility for monitoring the financial plans and operations of local governmental units. GASB standards set up a three-part budgetary principle: An annual budget(s) should be adopted by every governmental unit, the accounting system should provide the basis for appropriate budgetary control, and budgetary comparisons should be included in the appropriate financial statements and schedules for governmental funds for which an annual budget has been adopted. It’s important to remember that a budget, when adopted according to procedures specified in state laws, is binding upon the administrators of a government.
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