This page covers practice CPA questions covering budgetary accounts such an estimated revenues, appropriation and encumbrances.
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GASB standards require governments to present a comparison of budgeted and actual results for the General Fund and special revenue funds with legally adopted budgets. Although GASB standards guide the format of this comparison, the GASB does not prescribe budgetary accounting practices and does not require governments to maintain budgetary accounts. Budgetary accounts do not appear in the general-purpose financial statements. Nevertheless, governments typically record budgets, and governmental accounting systems are designed to assure compliance with budgets.
A government may raise revenues only from sources allowed by law. Laws commonly establish the maximum amount of a tax or set a maximum tax rate. Revenues to be raised pursuant to law during a budget period are set forth in an Estimated Revenues budget.
Resources raised by the government may only be expended for purposes and in amounts approved by the governing body or legislature. This is known as the appropriations process. An Appropriations budget, when enacted into law, is the legal authorization for the government to make expenditures for specific purposes. The amount expended may not exceed the amount appropriated for each purpose. In this manner, a government budget has the effect of law by limiting spending to approved levels. Estimated Other Financing Sources and Estimated Other Financing Uses are additional budgetary accounts reflecting anticipated inflows and outflows of resources from sources other than revenues and spending.
Encumbrances and the related reserve for encumbrances are the final two budgetary accounts. When a purchase order or contract is issued as authorized by an appropriation, the government may recognize this commitment as an encumbrance. An encumbrance is not a liability because the goods or services have merely been ordered, not received. The process by which a government moves from budgetary authority to expending fund resources is described in the following section.