State and local governments classify budgets by planning period, purpose, presentation format and legal status. These dimensions overlap, so a performance budget can also constitute a legally adopted annual operating budget.
For state and local governments, an appropriation establishes spending authority for a stated purpose, amount and period under applicable legal requirements. A proposed budget or management forecast does not establish that authority merely because it contains expenditure estimates.
Local governments establish the legal control level through their budget enactments, such as the fund, department, program or expenditure object. A department cannot offset an excess against another department's unused authority unless the applicable transfer rules permit that adjustment.
- A capital improvement plan may identify future projects without appropriating their entire projected costs.
- A continuing capital appropriation can cover a project's life, subject to its enacted ceiling and duration.
- A capital projects fund reports qualifying capital activity separately when separate reporting is legally required or elected; the capital budget alone does not determine fund selection.
Common mistakes
- Final budget posted twice. Adding the complete final revenue budget to the existing balance incorrectly produces estimated revenues of .
- Entire order reversed at delivery. Reversing $30,000 after only 120 packages arrive removes the remaining $18,000 encumbrance and overstates unencumbered authority by $18,000.
- Invoice used for reversal. Reversing $11,400 instead of $12,000 leaves encumbered, overstating the remaining commitment by .
Bottom line
- Budget period, purpose, format and legal status are separate dimensions; performance and program formats can carry binding appropriations.
- Budget adoption debits estimated inflows, credits appropriations and estimated financing uses, and balances through budgetary fund balance.
- Authorized amendments adjust existing budgetary accounts to final balances; a planned deficit debits budgetary fund balance.
- An order encumbers its estimate; receipt releases the fulfilled estimate and recognizes actual expenditure and payable; payment settles the payable.
Exam shortcut
Identify the requested event first: adoption, amendment, order, receipt, payment or closing. Use the event's date before selecting accounts. For an amendment, mark increases and decreases beside the existing budgetary balances. Enter only the change, then prove the final balance. For partial delivery, split ordered quantities into received and outstanding portions before looking at the invoice price.
The full lesson (about 4,674 words, 31 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- III.C8
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