Page 68 - Watauga FY21 Budget

BUDGET OVERVIEW

Basis of Accounting and Budgeting

Governmental funds follow the modified accrual basis of accounting. Under the modified
accrual basis of accounting, revenues are recognized in the accounting period in which
they become both measurable and available to finance expenditures of the fiscal period.
"Measurable" means the amount of the transaction can be determined and "available"
means collectible within the current period or soon enough thereafter to be used to pay
liabilities of the current period. The obligations of the city (e.g., outstanding purchase
orders) are budgeted as expenses during the fiscal year they are issued.

Proprietary funds use the accrual basis of accounting. Under this method, revenues are
recorded when earned (for example, drainage utility fees are recognized as revenue
when bills are produced) and expenses are recorded when a commitment is made (e.g.,
through a purchase order).

The Comprehensive Annual Financial Report (CAFR) shows the status of the City's
finances on the basis of "generally accepted accounting principles" (GAAP). The City
prepares its budget on the GAAP basis except for the treatment of depreciation
expense (which is not shown in the budget, although the full purchase price of
equipment is shown as a capital outlay). The modified accrual basis of accounting is
used for governmental fund budgets and the accrual basis of accounting is used for
proprietary fund budgets.

Balanced Budget

It is the policy of the City to prepare a balanced budget. A balanced budget is one
where proposed expenses are less than or equal to estimated revenues. A balanced
budget may also include situations where the Council approves the use of reserves or
fund balance to offset revenue shortfalls. If, during the year, the revenues received or
expected to be received are less than estimated, the City Manager will recommend a
revised or amended expense appropriation for Council approval that will again balance
the budget.

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