Page 37 - CityofBurlesonFY26Budget
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GOVERNMENTAL FUNDS appropriate funding at this early stage. The City's
CAFR contains a reconciliation between the
budget or financial plan and the actual results of
All budgets prepared for governmental funds are
budgeted on a basis similar to the modified operations. This reconciliation reflects the
accrual basis of accounting. Under this basis of adjustments necessary to report the results of
accounting, revenues are recognized when they operations on a budgetary basis rather than a
become measurable and available to finance modified accrual basis.
expenditures of the current period.
PROPRIETARY FUNDS
Expenditures are generally recognized when the
related fund liability is incurred. However, there Budgeting for business-like funds are called
are two fundamental differences between the Proprietary Funds. There are two types, the
bases used to report the City’s financial plan, (i.e., Enterprise and Internal Service Funds. Both are
the budget) versus the basis used to report prepared in a manner similar to the basis used in
the historical results of financial operations (the the accrual method of accounting but the
Annual Comprehensive Financial Report or ACFR). treatment of capital purchases represents an
area in which fundamental differences exist.
Firstly, the City employs full encumbrance These differences are, once again related to the
accounting at the budgetary level. Encumbrances timing rather than the amount of expenditures.
represent commitments related to unperformed
contracts for goods or services. Encumbrances In an accrual accounting environment, such as
outstanding at year end represent the estimated
amount of expenditures ultimately to result if that used in the preparation of appropriate
unperformed contracts in process at year-end are sections of the CAFR, capital purchases do not
completed. Encumbrances outstanding at year- immediately give rise to expenses. Instead,
end constitute neither expenditures nor liabilities capital items are recorded as assets and
on a modified accrual basis of accounting. depreciated over their useful lives.
However, on a budgetary basis these amounts are
reflected as having been funded by appropriations Each year an amount of depreciation is recorded
of the budget in force at the time the as an expense. So, in effect, the cost of the asset
encumbrance was created. For example, assume is spread over a period equal to the life of the
that an item was encumbered and ordered in asset. For budgetary purposes, the full cost of the
20X4 then delivered and invoiced in 20X5. For asset is charged to the budget during the period
budgetary purposes, the transaction would be in which the item was purchased. This method
reflected in the 20X4 budget, the year the accelerates the recognition of an item's cost and
encumbrance is established. For financial forces the City to officially identify and
reporting purposes, the transaction would be appropriate funding at the earliest possible
reported in 20X5; the year the item was delivered stage.
and the related liability was incurred. One should
note that encumbrance accounting affects the
timing of expenditure recognition, not the
amount.
Employing encumbrance accounting at the
budgetary level tends to promote the earliest
possible recognition of financial obligations and
requires the City to officially identify and
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