Sample Economics Essays on Budgeting

Introduction to budget preparation

Budgets are financial plans concerning future revenues and costs of a business organization or government.  Controlling a budget is a common practice because financial analysts must balance between costs and revenues to ascertain whether an organization is making profits. Budget preparation is an activity balancing and comparing incomes and revenues with actual performance to ascertain whether there are any variances. Budget preparation goes through a series of processes and activities both in private and public sector. These activities include; updating budget assumptions, reviewing bottlenecks, checking available funds, step costing points and creating a budget package. Consequently, the budget package is issued, revenues forecast are obtained, and departmental budgets are then taken into consideration before obtaining capital budget requests to review the budget. Then, the budget is taken through iterations before being issued and ultimately loaded into an organization’s financial system.

Operating and funding sources of public revenue

One of the main functions of a government is the collection and utilization of public revenue. Governments are tasked with developing infrastructure and running all crucial government functions. The expenditures are always controlled by budgets. Therefore, governments must collect revenues from different sources to smoothen all operations. First, public revenues are collected through taxes. Economists affirm that taxes are compulsory payments remitted to a government without expecting any direct benefits from the funds (Bhim, 2017). This is perhaps one of the main sources of public revenue. Employers deduct monthly sums from their employees’ wages then remit directly to the government. Value added taxes are included in prices of commodities, the public pay taxes when they buy such goods.  Second, a government can generate public revenue by selling goods and service to the public in form of commercial revenues or prices. Examples of these include fares and freights charged by railways or electricity bill arising from consumption. Third source is fees payment by the citizens for non-economic endeavors of the government such as court fines, and benefits the entire society. Fourth, public revenue is collected from license fee where an authority of the government grants permission for a business or individual to operate an enterprise. Lastly, other sources of public revenues encompass; special assessment, fines and penalties, gifts and grants, excise and customs duties, income from government property and escheat.

Effects of demographics on public revenue services

Public funding and revenues are allocated based on demographic factors. For example, sections of the population known to be involved in drug abuse would see more revenue sources directed towards them. Likewise, those economically endowed will also have revenues sources directed to them since they have myriad resources. Population migration from one place to another affects revenues collection because financial equalization is weakened thereby jeopardizing financial position of a region. Demographic decline also leads to loss of revenues. Economists affirm that a fall in the number of residents owing to demographic decline also implies lower expenditure demand in many policy areas and allocations (Esteve and Tamyko, 2011). On the same note, an ageing population will increase per capita of public spending in respect to health and care services. Further, a shrinking population may need growing expenditures to operate and effectively manage its infrastructure.

Public and private budget preparation strategies

Budget preparation in public sector is different from that of private. The strategies differ in respect to purposes, processes and accounting methods. An accountant must elaborately understand the difference between these two sectors to prepare comprehensive budgets. First, the strategies differ in respect to organizational purpose. In view of this, the goal of the private sector is to generate sufficient profits. Therefore, the strategy involves examination of business bottom line to ascertain on the level of profitability. Budget prepared should reflect the level of profits that a private enterprise seeks to achieve. On the other hand, public preparations process is strategized to solve a particular need in society. Financial management processes are not aimed at generating profits. Therefore, such budgets must be prepared in a way that it ensures strategic efficient use of resources.

Second, the strategies differ in respect to decision making. In private sector budget preparations, decisions are made from the top level of management then handed down the hierarchy. Research asserts that this strategy ensures that budgets prepared are well thought out and meets both short and long term business goals (Reichard and Helden, 2015). However, in public, decisions are much more different because financial analysts and accountants plough through interested participants and population. This process is more flexible and allows for stakeholder participation all aimed at serving societal needs. Third, accounting is more elaborate in the private sector. Financial managers must follow acceptable accounting standards and principles in the preparation. The process is intricate and requires a lot as compared to public budgeting where such standards are not followed.

Conclusion

Public and private revenues are critical for success of a private enterprise and the society. Whereas the government collects public revenues from several sources such as taxes, the private sector relies on profits generated from sale of goods and services. Notably, demographic is an element that directly affects both private and public revenue collection and expenditure. Public and private budgeting processes and strategies are different in many ways. However, both require certain level of creativity and innovation to ensure that funds are used efficiently.

 

References

Bhim Chimoriya. (2017). Various sources of public revenue. Wisenepali. Retrieved from:

http://www.wisenepali.com/2015/03/various-sources-of-public-revenue.html. Retrieved March 3, 2018.

Esteve Marc and Tamyko Ysa. (2011). Differences between the public and the private sectors?

Reviewing the myth. The Institute of Public Governance and Management. Retrieved from: http://www.esade.edu/public/modules.php?name=news&idnew=676&newlang=english. Retrieved March 3, 2018.

Reichard Christoph and Helden Jan van. (2015). Commonalities and differences in public and

private sector performance management practices:  a literature review. Paper to be presented at Panel G 102 Public Accounting and Accountabilityof the annual IRSPM Conference, Birmingham, UK. Retrieved from: http://irspm2015.com/index.php/irspm/IRSPM2015/paper/viewFile/921/540. Retrieved March 3, 2018.