Managers across the public sector can do little to affect rising costs for employee health care, new technology, wages and salaries, and a variety of other factors that drive growth in expenses. The best we can do is understand these trends, forecast them to the best of our ability, and help policymakers understand the trade-offs these trends put in play. Once we’ve identified a program or service’s cost structure, we can take our first steps toward preparing its budget. A budget is simply a plan for what an organization wants to accomplish, and the resources it will use to accomplish it.

Liquidity refers to how quickly an asset can be converted to cash with minimal loss in value. We can convert an asset to cash by selling it, or, in the case of receivables, by collecting on it. For that reason, a point of emphasis for the balance sheet is the relationship between the organization’s assets and liabilities.

About the Book

For example, this particular county government allocates electricity costs to different cost centers per kilowatt hour (kWh). Sometimes it’s feasible to measure electricity use with this level of precision, and sometimes it’s not. Assume that the copier in question has an individualized meter that measures its electricity use. Ideally, we can allocate indirect costs according to their key cost driver(s).

To that end, state and local governments prepare a set of “government-wide” financial statements. These statements present the government’s overall financial position, and they offer some insight into its ability to continue to deliver services in the future. These government-wide statements are, with a few modifications, conceptually similar to the basic financial statements for a non-profit or for-profit. OP also reports $24.3 million of both assets and liabilities in its agency funds.

How to Read an Income Statement

One of the most common is to use straight-line depreciation also known as the straight-line method. Under the straight line method, when an organization purchases a new capital asset it The Basic Financial Statements Financial Strategy for Public Managers determines the length of time it can use that asset to deliver services. The organization must also determine the value of that asset once it’s no longer useful for delivering services.

It describes the taxes and other resources the government intends to collect, and since taxpayers must pay those taxes, it follows that the government must spend those resources in accordance with the budget. Recall from the earlier discussion that the budget is one of citizen’s most important tools to hold their government accountable. Non-profits’ budgets don’t have the force of law, but they’re also critically important.

Budget Strategy

Public safety and infrastructure are typically the largest spending items. At the same time, counties also manage services where a broader geographic reach, relative to municipalities, is more practical and https://quickbooks-payroll.org/ economical. Instead of dozens of municipalities conducting their own elections, county governments manage county-wide elections that cover all the municipal and county officials elected within the county.

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• If those figures are predictable, we can assume the current indirect cost rate for nurses is 17%.
• Where necessary and appropriate, you’ll see discussions that highlight how each sector’s technical information, legal environment, and strategic directions are different.
• At the outset it’s important to draw a distinction between full cost accounting and differential cost accounting.
• A public health department can, in concept at least, recover some of those costs by selling those capital items.

Non-profits depend on donations and contributions to fund those services. Keep in mind that after this first portion is expensed $1,125 in pre-paid association membership expenses remains on the balance sheet. This transaction simply expenses out one-quarter of the original $1,500 asset. Here Treehouse has swapped a liquid asset (cash) for a less liquid asset (equipment).