PUBLIC

ACCOUNTING
AND BUDGETING
 COURSE OBJECTIVES
 This course is intended to provide public
administration students an overview of public
agency budgeting and financial management.
Public agency budgets are the means by which
public resources are allocated and, as such, are
central to the role of government. The course
will provide an overview of the budget process,
including the players and the strategies they
employ, as well as provide students with the
practical skills involved in understanding,
analyzing and preparing budgets.
 WHAT IS PUBLIC BUDGETING?
 Public budgeting is a field of public administration and a
discipline in the academic study thereof. Budgeting is
characterized by its approaches, functions, formation,
and type.
 The politician sees the budget process as "a political event
conducted in the political arena for political advantage".
 The economist views budgeting as a matter of allocating
resources in terms of opportunity cost where allocating
resources to one consumer takes resources away from
another consumer.
 WHAT IS PUBLIC BUDGET?
A "budget" is a plan for the accomplishment
of programs related
to objectives and goals within a
definite time period (often one year),
including an estimate of resources
required, together with an estimate
of resources available, usually compared
with one or more past periods and showing
future requirements.
 REVENUES
 Government revenue is the money received by a
government from taxes and non-tax sources to
enable it to undertake government expenditures.
 The three main sources of tax revenue are
individual income taxes, payroll taxes, and
corporate income taxes. Other sources of
tax revenue include excise taxes, the estate tax,
and other taxes and fees.
 REVENUES
 Government revenue is the money received by a
government from taxes and non-tax sources to
enable it to undertake government expenditures.
 The three main sources of tax revenue are
individual income taxes, payroll taxes, and
corporate income taxes. Other sources of
tax revenue include excise taxes, the estate tax,
and other taxes and fees.
 REVENUES
INDIVIDUAL TAX - An income tax is a tax imposed on
individuals or entities (taxpayers) that varies with respective
income or profits (taxable income).
PAYROLL TAX - Payroll taxes are taxes imposed on employers
or employees, and are usually calculated as a percentage of
the salaries that employers pay their staff. Payroll
taxes generally fall into two categories: deductions from an
employee's wages, and taxes paid by the employer based on
the employee's wages.
 REVENUES
CORPORATE INCOME TAX - An assessment levied by a
government on the profits of a company. The rate
of corporate income tax paid by a business varies between
countries, although since corporations are legal entities
distinct from their owners and operators, they are typically
taxed as if they were people.
ESTATE TAX - is a tax on assets such as cash, real estate, or
stock that are transferred from deceased persons to their
heirs.
EXCISE TAX - taxes are collected on the sale of certain goods
(e.g., fuel, alcohol, and tobacco); they are intended to raise
revenue and, in some cases, discourage consumption of the
taxed product.
 EXPENSES / EXPENDITURES
 Government expenditure refers to the purchase of
goods and services, which include public
consumption and public investment, and transfer
payments consisting of income transfers
(pensions, social benefits) and capital transfer.
 A government spends money towards the supply
of goods and services that are not provided by the
private sector but are important for the nation’s
welfare. Government spending goes to the
nation’s defense, infrastructure, health and
welfare benefits.
 WHAT IS PUBLIC BUDGET?
 A budget is a political instrument that:
1. weighs policy priorities against available public resources;
2. specifies the ways and means of providing public programs and
services;
3. establishes the cost of programs and the criteria by which these
programs will be evaluated for efficiency and effectiveness;
4. ensures that the programs will be evaluated at least once each
budget cycle;
5. redistributes income;
6. provides the government with a spending limitation; and
7. provides transparency by which the government may be held
accountable at the end of each budget cycle or political term.
TYPES OF GOVERNMENT
BUDGET
 OPERATING OR CURRENT BUDGET
 It is an annual budget of an activity which contains estimates of
the total value of resources required for the performance of the
operation including reimbursable work or services for others.
 It also includes estimates of workload in terms of total work
units identified by cost account.
 It is prepared in advance of a reporting period as a goal or plan
that is expected to achieve.
 An operating budget starts with revenue, and then shows each
expense type. This includes variable costs, or the costs that
vary with sales, such as the cost of raw materials and
production labor. The budget also includes operating expenses,
such as interest on business loans, and the non-cash expense of
depreciation.
 CAPITAL OR INVESTMENT BUDGET
 is the planning process used to determine whether an
organization's long term investments such as new
machinery, replacement of machinery, new plants, new
products, and research development projects are worth
the funding of cash through the firm's capitalization
structure (debt, equity or retained earnings).
 It is the process of allocating resources for major capital,
or investment, expenditures.
 One of the primary goals of capital budgeting investments
is to increase the value of the firm to the shareholders.
 CASH FLOW BUDGET
 Is an estimate of all cash receipts and all cash expenditures that are
expected to occur during a certain time period.
 This budget is used to assess whether the entity has sufficient cash to
operate.
 Governments conduct cash flow analysis to estimate available cash deposits,
expected inflows, and required disbursements during a given period so they
can ensure sufficient liquidity.
 Common inflows include tax receipts, bond proceeds, utility payments,
grants, other revenue from fees and penalties, and maturities of all securities
held in investments that will mature during the forecast time frame.
 Outflows represent anticipated payments such as debt service, employee
payroll or benefits, and payments to vendors for goods and services
anticipated during the forecast time frame. Governments should also consider
and accommodate non-repetitive payments such as capital expenditures or
expected legal settlements, using reasonable assumptions.
 CASH FLOW BUDGET
 The analysis is intended to measure and assess the
government’s ability to meet its needs, to negate the need for
any short-term borrowing or liquidation of long-term
investments before maturity, and to identify any idle funds, and
the duration of that idle period, to determine whether those
funds could be invested over that time frame.
 Cash flow analysis can also help governments recognize issues
that might have a negative impact on their cash positions.
 When looking at the entire organization, governments can use
cash flow analysis to coordinate spending patterns to mitigate
potential shortfalls by using information to improve revenue
collection practices.
 THE BUDGET
PROCESS
LIFE CYCLE OF A PUBLIC BUDGET