Illustration 15-1, on page 15-16, illustrates the relationship between the general ledger control accounts and the subsidiary ledger detail accounts. Usually, budgets are prepared according to object of expenditure. These are, for example, salaries, employee benefits, utilities, and supplies.
Each object of expenditure is a line item in the budget or a classification of authorized spending by a department or function of the government. The appropriation for each line item is recorded in an expenditures subsidiary ledger account as a credit. During the accounting period, such credits will be offset by debits recording actual expenditure transactions. The credit balance in the subsidiary ledger account tells managers how much money they have remaining to spend for that line item purpose. Budgetary amounts of estimated other financing uses and actual other financing uses are recorded in the same manner. The detailed information recorded in the subsidiary ledgers is a key mechanism of budgetary control. That is, the accounting records should show whether authorized spending for a line item is exceeded.
A subsidiary ledger for revenues is also maintained. The budgetary amount of each revenue source is recorded in a revenues subsidiary ledger account as a debit. During the accounting period, such debits will be offset by credits recording actual revenue recognition. Budgetary amounts of estimated other financing sources and actual other financing sources are recorded in the same manner.
To emphasize accounting techniques and to conserve space, this text will use only general ledger control accounts in its examples for budgetary and actual accounts.
♦ Governments use budgets and funds because of the need to demonstrate accountability.
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