Basis of Budgeting

Basis of budgeting refers to the methodology used to include revenues and expenditures in the budget. Archuleta County budgets on a modified accrual basis. The revenues and expenditures are assumed to be collected and spent during the period appropriated. Using this assumption, the current year revenues are compared to expenditures to ensure that each fund has sufficient revenues to cover expenditures during the budget year, or that there are sufficient cash reserves in the fund to cover a revenue shortfall.

Basis of Accounting

Basis of accounting refers to what is measured in a set of financial statements. A closely related, but separate, issue is when recognition should take place; the specific time at which revenues and expenditures, or expenses, are recognized in the accounts and reported in the financial statements. The government-wide financial statements, as well as the financial statements for proprietary funds and fiduciary funds, are reported using the flow of economic resource measurement focus and the accrual basis of accounting. Under accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of when the cash is received or spent.

Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized as soon as they become both measurable and available, and expenditures are recorded in the period that the expenditure occurs and becomes a liability.

Basis of Budgeting vs. Basis of Accounting

The main difference between the basis of accounting used for accounting purposes and the basis of accounting for budgeting purposes is that the budgets for the Proprietary funds are prepared on a modified accrual instead of the full accrual basis.

Under the modified accrual basis, depreciation and amortization costs are not budgeted since these costs are non-cash transactions. The budget for all other funds is also prepared on a modified accrual basis.

State law requires budgets for the county’s governmental and proprietary fund types. Budgets for governmental types are adopted on a basis consistent with Generally Accepted Accounting Principles (GAAP). Budgets for proprietary fund types are adopted on a Non-GAAP basis using the same measurement focus of governmental funds.