We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is Budgetary Accounting?

By Osmand Vitez
Updated: May 16, 2024
Views: 21,068
Share

Budgetary accounting is a particular of accounting most often used by local, state and federal municipalities. Private sector companies use budgets to help guide their expenditures, but it is not the same as budgetary accounting. Government accounting uses a series of funds that represent the capital appropriated for certain uses. Other entries posted into the funds are allotments and encumbrances, which detail how the state or federal agency will spend appropriated money in each fund. One fund is typically marked as general to represent unappropriated capital.

Government accounting is often a difficult process to understand and maintain for most accountants. This is because of the budget process associated with the few sources of income earned by the government agency, such as sales, property or income tax. With each income received by the government municipality, accountants must appropriate the funds according to the predetermined budget. Most agencies or municipalities have a budget council that determines how they spend tax revenues. The budget process is typically a detailed process not necessarily governed by accountants, but the elected officials of the agency or municipality.

In some budgetary accounting forms, each appropriation made by a governing body may represent a fund. For example, appropriations can be set for payroll, maintenance, police and fire fighters, infrastructure improvements, new roads or other major projects. Appropriated accounts and funds will represent a specific purpose for the money allocated into the account. For most government agencies or municipalities, spending funds appropriated for one use on another project is illegal. For example, funds meant for street cleaning cannot go toward the repair of police cars. Appropriation funds may be limitless in the way a municipality spends capital.

Allotments are the specific amounts of money a government agency or municipality will place into each fund in the budgetary accounting system. Allotments typically occur when the municipality receives money from tax revenues. Accountants must break out each portion of money and record it into the specific fund. This is a common process for sales tax collections. Many municipalities use sales tax revenues to pay for a number of different purposes. Accountants must create allotments to post the capital earned into each fund.

An encumbrance is a particular use of tax revenue that may or may not be paid for when the municipality makes the encumbrance. Most governments only receive tax revenues at specific times during the year. An encumbrance allows the agency or municipality to pay for goods using an accounts receivable, i.e. credit payment, system. Accountants will record the entry into the budgetary accounting system using an encumbrance. Once the tax revenue comes in, accountants will pay off the encumbrance and remove it from the accounting ledger.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
Share
https://www.smartcapitalmind.com/what-is-budgetary-accounting.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.