How Accrual Accounting is Different From Budgeting

Budget in Public Sector

Fiscal policy is the use of government spending and taxation to influence the economy, i.e., Budget.

The budget cycle is an integral part of the PFM (Public Financial Management) process.

Public financial management (PFM) plays a critical role in ensuring that a country’s resources are used efficiently and effectively to achieve economic and social development objectives.

In order to ensure that the budget cycle is followed effectively, there needs to be a strong legal and fiscal framework in place. The legal framework sets out the rules and regulations that need to be followed in the budget preparation, execution, and accounting & reporting phases of the budget cycle.

How Accrual Accounting is different from Budgeting?

Accrual accounting is concerned with recording and ex-post reporting of transactions in accordance with the accrual concept.

Accrual budgeting, on the other hand, involves ex-ante planning on an accrual basis. In addition to cash flows, the ex-ante planning procedure includes incorporating accrual budgets.

However, the drawback is that this can give rise to complex accounting and cash management issues that must be addressed carefully before accrual budgets can be successfully implemented by the Government.

When there is a difference between the budgetary basis and the accounting basis, there is a need for reconciliation.

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