Budget Preparation
Abstract
Budgets are necessary to account for income and expenses
in business, government, and personal lives. This paper will present budget
preparation steps in relation to public and business preparation strategies. The
reader will be introduced to the operating and funding sources of public
revenue and the paper will establish the effects of demographics on public
revenue services.
Budget preparation involves a process by which governments,
organizations, and individuals create and approve a budget. The process is
generally recognized and controlled by a governing or legal agenda. There are
several steps in the preparation phase of a budget; 1) aligning goals, 2)
listing incomes and expenses, 3) outline needs and wants, 4) creating a budget,
5) situating a plan into action, 6) additional expenses, and 7) predicting
results.
A budget begins by deciding upon the financial goals of
future income and expenditures in order to streamline the process. In order to
be successful, the budget must be well-written, adaptable, accurate, and
plainly communicated. Both private and public entities use the budget process
in development and calculating budgets. While private firms use budgets to
forecast operational results, the public sector coordinates expenses on
authorized resources and amenities with proofs of purchase of public money such
as taxes and fees.
Public vs Private Business Preparation Strategies
Businesses owned and operated by administrations, such as
community hospitals and institutes, public lodgings, and public libraries are
planned with taxpayer dollars. A dilemma for many public sectors is how to meet
citizen’s requests for services while at the same time lessening levies, fees,
and expenditures (Lee, 1992). Governors and their accounting staff are
presented with sundry procedure choices during the groundwork stage of the
budget process.
Planning budgets is necessary for public and private
sectors. Preparation stratagems differ for both. Business budgets tend to
follow transactions progress during a time period and weigh how effectively new
targets were met. A businesses’ currency budget follows the amount of cash
coming in and going out during a time period and likens it to objectives for
that time frame. There is an essential difference in the aims of business
strategy and public strategy. A business is directed by the revenue drive
thereby increasing profits and prosperity for personal benefits, whereas public
strategy supports societal benefits.
The public sector consists of three types of budgets;
balanced, surplus, and deficit. These budgets precisely echo the services being
delivered and diminish discriminations as much as possible through
restructuring of income and wealth. Many state and local municipalities’
budgets include an operating budget for frequent spending items or a principal
budget for revenues and spending on assets such as buildings, equipment, and organization.
Public as well as private businesses begin the preparation
phase months in advance. Managers and sector heads champion together to develop
goals and initiatives. Likewise, a governor, mayor, or city administrator will
dispense his or her budget priorities along with directives and expectations to
others in order to formulate their budgets based on spending needs and
priorities.
Operating and Funding Sources of
Public Revenue
Private business relies on
profit, whereas public agencies rely on revenue for operation and funding. Some
of the types of funding sources come from individual income taxes, payroll
taxes, and corporate income taxes. Other operating and funding sources include
excise taxes, estate and inheritance taxes, and fees. Approximately 45% of national
tax income comes from citizen personal income taxes and 39% comes from social
security and Medicare withholdings (Davies, 2010). Whereas the public sector
relies on taxation, the private sector relies heavily on product sales, service
fees, advertising sales, data access fees, and commissions generated from other
sources.
Public revenue helps sustain the
resources required for these activities. Public revenue is classified for ease
into three categories; direct revenue from railways and highway fees,
derivative revenue from the public such as taxes, fees, fines, and penalties,
and lastly, anticipatory revenue from sales of bonds and other commercial
revenue sources. The sources by which government earns its income is tax
revenue and non-tax revenue (Darshan, 2014).
Effects of
Demographics on Public Revenue Services
Fiscal cycles such as a waning in revenue, especially sales
and income taxes are more intricate to demographics on public revenue amenities.
During a recession, private and public revenues take a big hit, thus
intergovernmental aid dispensed to area governments may decline. Inflation
affects uncertainty in government when the cost of living spikes. Interest rate
changes affect budgets especially when the federal government is forced to
borrow continuously raising the federal deficit. Opposition with public sectors
for new populations or business venture wields a commercial effect on area planning
(ICMA, 2016).
Societies with decreasing populations have struggle in a lessening
of expenditures resulting in economic responsibilities issues. Age distribution
of populations affects public education, safety, and recreational activity
spending. Growth in personal income of residents affects the size of private
and public governments. Higher-income families demand higher quality services
requiring governments to look for other areas to create revenue. This
alteration has a major effect on budget allocations and the size of private and
public agencies (ICMA, 2016).
Conclusion
Public and businesses use budgeting to account for income
and expenses, as well as distributing or allocating funds across several
departments. Preparing a budget takes time and is thought-provoking,
well-written, and balanced. Preparation strategies are different for both
public and private sectors, but the mission is the same. Businesses are
generally guided by the motive to earn profits via product sales, whereas the
public sector generates income or revenue through taxation of citizens and
businesses. Several demographic factors affect the budgeting process, for
instance, inflation, recession, population change, age distribution, and
personal individual income all factor into balancing a budget for a fiscal
year.
References
Davies, A. (2010). Where does the government get the
money? Government Spending 101. George Mason University: Mercatus Center.
Retrieved from https://www.mercatus.org/publications/government-spending/where-does-government-get-money-it-spends
Darshan,
J. (2014). Public revenue: public finance. Economy
& Finance. Retrieved from
https://www.slideshare.net/DarshanJoshi5/public-revenue?next_slideshow=1
ICMA. (2016). 4 Factors Influencing Local
Government Financial Decisions. Retrieved from https://icma.org/blog-posts/4-factors-influencing-local-government-financial-decisions
Lee, R. (1992). The use of executive guidance in
state budget preparation. Public Budeting & Finance. 12(3). p.
19-31. Retrieved from http://eds.a.ebscohost.com/eds/pdfviewer/pdfviewer?vid=2&sid=13bb4460-761d-45d3-bf2c-b124201986ec%40sdc-v-sessmgr02
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