Budget Adjustment
A base budget summarizes the current year’s level of spending. In contrast, the baseline budget recognizes that the spending in the current year is likely to move to the next year but should be adjusted to consider things such as the annualization of part-time positions and inflation. According to Chen et al. (2014), the base budget adjustments arise from reducing funds due to consideration of start-up costs or stretching funding when a program is financed, with the first date being the middle of the financial year. In such instances, the adjusted level of funding is known as the baseline budget (Lalli, 2011). The amount of money funded for the previous year may also be incorrect for future years because after the annual budget has been created, there may be a need to make changes to the expense budget. The expense budget is used to track the purchases in a business and reduce operating costs to the least amount possible.
When the changes in the expense budget involve exchanging from one expense ledger to the other without increasing the total amount in the budget, an adjustment to the budget can be issued to reallocate the balances that are not committed to any expense. The adjustments are not made to the revenue budget because the revenue budget is only changed if the total revenue predictions for an account have increased and if the extra revenue will be spent in the current fiscal year (Shim et al., 2011).In such instances, the total budget will be increased through a budget revision. The revenue budget includes the revenue received by a business and the expenditures met using the revenues. Therefore, the revenue budget can only be adjusted if the total revenue predictions for the account increase and when extra revenue is being spent in the current fiscal year.
References
Chen, G. G., Weikart, L. A., & Williams, D. W. (2014). Budget tools; Financial methods in the public sector. CQ Press.
Lalli, W. R. (2011). Handbook of budgeting. John Wiley & Sons.
Shim, J. K., Siegel, J. G., & Shim, A. I. (2011). Budgeting basics and beyond. John Wiley & Sons.
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The base budget is the amount of money that is funded for a current year.
Budget Adjustment
Explain why that amount may not be correct for future years.
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