In this video, we walk through 5 BAR practice questions on budgeting journal entries. These questions are from BAR content area 3 on the AICPA CPA exam blueprints: State and Local Governments.
The best way to use this video is to pause each time we get to a new question in the video, and then make your own attempt at the question before watching us go through it.
Budgeting Journal Entries
State and local governments often record their legally adopted budgets in the accounting records. These entries are called budgetary journal entries. They help the government track whether expected financial resources will be enough to cover the spending that has been authorized for the year.
Although several accounts may appear in a budget entry, the basic process is straightforward. Estimated inflows are generally debited, budgeted outflows are generally credited, and Budgetary Control is used as the amount needed to balance the entry.
Original and Final Budgets
The original budget is the government’s first complete appropriated budget for the fiscal year. It shows the estimated revenues and other sources the government expects to receive, along with the spending that has been authorized.
The final budget is the original budget after all legally authorized changes have been included. For example, a government may approve a supplemental appropriation or revise its estimate of the revenue it expects to collect. Those authorized changes become part of the final budget.
The final budget should not be confused with the government’s actual results. It still contains budgeted amounts. Actual revenues and expenditures are recorded separately from the budgetary accounts.
The Basic Budget Entry
The two main accounts in a simple budget entry are Estimated Revenues Control and Appropriations Control. The basic entry is:
Debit Estimated Revenues Control
Credit Appropriations Control
Debit or credit Budgetary Control for the difference
Estimated Revenues Control is debited because it represents the financial resources the government expects to receive. Appropriations Control is credited because appropriations represent the spending authority granted to the government.
Budgetary Control is the plug that makes the entry balance. Whether it is debited or credited depends on whether expected inflows are greater or less than budgeted outflows.
Determining the Budgetary Control Balance
When estimated revenues exceed appropriations, Budgetary Control is credited. This represents an expected budgetary surplus because the government expects its inflows to exceed its authorized spending.
For example, assume a government estimates revenues of $1,284,000 and approves appropriations of $1,139,000. Estimated revenues exceed appropriations by $145,000, so the entry is:
Debit Estimated Revenues Control: $1,284,000
Credit Appropriations Control: $1,139,000
Credit Budgetary Control: $145,000
When appropriations exceed estimated revenues, Budgetary Control is debited. This represents an expected budgetary deficit because the government plans to use existing budgetary resources to cover part of its authorized spending.
If estimated revenues are $2,376,000 and appropriations are $2,514,000, appropriations exceed estimated revenues by $138,000. The entry is:
Debit Estimated Revenues Control: $2,376,000
Debit Budgetary Control: $138,000
Credit Appropriations Control: $2,514,000
Revenues and Other Financing Sources
Not every inflow is classified as revenue. Property taxes, licenses, fines, and intergovernmental revenues are generally included in Estimated Revenues Control. These amounts arise from the government’s normal revenue sources.
Debt proceeds and transfers received from another fund are classified as estimated other financing sources. They provide financial resources, but they are not revenues. As a result, they are recorded separately from Estimated Revenues Control.
Transfers sent to another fund are classified as estimated other financing uses. Estimated other financing sources are debited with estimated revenues, while estimated other financing uses are credited with appropriations.
For a complete budget entry, the government compares all expected inflows with all budgeted outflows:
Estimated revenues + Estimated other financing sources − Appropriations − Estimated other financing uses
If the result is positive, Budgetary Control is credited. If the result is negative, Budgetary Control is debited.
