Preparing a budget is a systematic method of determining available funds and how the funds are to be expended. A basic formula has been developed to prepare a budget.

1. Establish beginning balances as of July 1 (accumulated funds from previous fiscal year)
2. Add estimated revenue for the next fiscal year
3. Add transfers from other funds (See Section 5 on GASB 54)
4. A, B, and C equals estimated available funds for expenditures
5. Subtract estimated expenditures for the next year
6. Subtract transfers to other funds (See Section 5 on GASB 54)
7. All of the above equals estimated ending balances as of June 30

This formula applies to each separate fund for which a budget is prepared. In preparing a budget using this formula, the accepted principle in determining budget estimates is to conservatively estimate revenues and adequately estimate expenditures. More details about the basic formula.

Over-estimating revenues and under-estimating expenditures will jeopardize the financial condition of the local government, since it has no way to print money or borrow funds for current operations past June 30 of the current fiscal year. A soundly planned and financed budget is imperative to the local government’s financial condition, especially when it must issue long-term bonds or notes.

Recommended Practice: Periodically during the budget process, prepare an Operational Statement for all funds for the proposed budget.