Unique Features of a Governmental Unit
The main difference between a commercial company and a governmental unit is that the former aims to generate profit, whereas the latter focuses on providing public services. When it comes to ownership status, the public owns a governmental unit, which a public servant or an elected official controls. However, a commercial company is owned by shareholders or private individuals.
In the case of funding, a governmental unit uses public sources of revenue, such as grants and taxes. In contrast, a commercial organization relies on sales, loans, and investments (Budgeting, budgetary accounting, n.d.). As a result, a government unit is accountable to the elected representatives and the public. A commercial company is primarily accountable to its owners, such as shareholders, as well as agencies that control and regulate the industry and markets. Thus, there are an array of essential distinctions when it comes to a commercial company and a governmental unit’s purpose, finding, accountability, and ownership.
Budget Process of a Governmental Unit
Budgetary Fund Balance
The budgeting process of a government unit requires one to know essential terms, such as appropriations, encumbrances, expenditures, and budgetary fund balances. The latter is about the differences between the actual expenditures and the budgeted sums. For example, a budgetary fund balance of $100,000 in a county would mean that the local government spent less than what it budgeted, which equals $100,000.
Expenditures
The expenditures refer to the actual spending made by a governmental unit (Budgeting, budgetary accounting, n.d.). For instance, a county government budgeted $100,000 for street lights, but, in reality, it spent only $90,000. The latter sum would be considered and accounted for as an expenditure because it reflects the actual funds spent on the budgeted amount.
Encumbrances
In the case of encumbrances, the term represents specific spending sum commitments allocated to services or products it seeks to purchase. It is an anticipatory number for expected spending, which is reflected in the budget of a governmental unit as an encumbrance. For example, a public school plans to buy textbooks worth $30,000 for the upcoming year, which would be recorded in the budget as an encumbrance sum of $30,000.
Appropriations
The appropriations are legally granted authorizations approved by legislative bodies (Budgeting, budgetary accounting, n.d.). Essentially, they set a spending limit or ceiling for each governmental unit, such as a program, agency, or department. For instance, a public healthcare program with an appropriation of $150,000 for a piece of medical equipment will not be able to purchase a product that costs more than the set amount.
Reference
Budgeting, budgetary accounting, and budgetary reporting. (n.d.). Web.