Government Budget Essay

University of Bahrain
College of Business Administration
Department of Accounting

ACC341
GOVERNMENTAL ACCOUNTING
CASE STUDY

Student Name: Hawra Abdulnabi Salman
Student ID: 20120338
Section: 01
Instructor: Prof. Sayel Al-Ramadan

1. Explain the three approaches used to prepare governmental Budgets. Give your recommendations on the most appropriate approach to prepare government budget in the Kingdom of Bahrain and how.

(1) Line-Item Budgeting approach:
Line-item budgeting is a very common approach that is used in many organizations, because of its simplicity and its control orientation. Line-item budget emphasizes inputs and provides information on how much is spent rather than what for it is spent. It is a financial plan

• It enhances organizational control.
• It allows the accumulation of expenditure data by organizational unit for use in trend or historical analysis.
Disadvantages of using this approach:
• It does not link inputs with outputs, and it does not focus on how efficiently resources are being used.
• It does not present useful information to decision makers on the functions and activities of organizational units.

(2) Performance budgeting:
Performance budgeting approach seeks to present a clear relationship between the input of resources and the output of services. A different focus is seen in performance budgeting models. In a strict performance budgeting environment, budgeted expenditures are based on a standard cost of inputs multiplied by the number of units of an activity to be provided in that time period. Although this strict approach may be useful for certain types of operations, many organizations require a more flexible performance approach. It is very similar to zero-base budgeting, but it does not assume that all programs must be re-justified during each budget cycle.
The Performance Budgeting System has several great benefits such

These estimates shall be presented to the Ministry within a period of time to be determined by the Ministry and they shall indicate expenditures divided into categories in accordance with the instructions to be issued by the Minister."
4. Explain what is meant by encumbrances in governmental accounting. What is the purpose of encumbrances? Are they used in Bahrain? Show accounting treatment of an appropriation that have been "used up" by the issuance of purchase orders before the items are received and actual expenditures and liabilities are recognized.
Encumbrances are commitments related to unfilled contracts for goods and services including purchase orders. An encumbrance is the amount that is reserved when purchase order is placed but still not received.
The purpose for using encumbrances is to provide control over the amount available for spending in the fund and to prevent any further expenditures if there is no available appropriations.
In other word, encumbrances make sure that amounts to be spent do not exceed the available appropriations "to avoid budget overspending".
Other benefits of using