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Budget accounting is a particular form of accounting most often used by local, state, and federal municipalities. Private sector companies use budgets to guide their spending, but it is not the same as budget accounting. Government accounting uses a series of funds that represent appropriate capital for certain uses. Other entries that are placed on the funds are fees and levies, which detail how the state or federal agency will spend the appropriate money in each fund. A fund is normally marked as general to represent embezzled capital.
Government accounting is often a difficult process for most accountants to understand and maintain. This is due to the budgeting process associated with the few sources of revenue that the government agency gets, such as sales, property, or rent tax. For each income received by the municipal government, the accountants must appropriate the resources according to the predetermined budget. Most agencies or municipalities have a budget board that determines how they spend tax revenue. The budget process is often a detailed process that is not necessarily governed by accountants, but by elected officials of the agency or municipality.
In some forms of budget accounting, each appropriation made by a governing body may represent a fund. For example, allowances can be made for payroll, maintenance, police and fire, infrastructure improvements, new roads, or other major projects. Appropriate accounts and funds will represent a specific purpose for the money allocated to the account. For most government agencies or municipalities, spending funds appropriated for one use on another project is illegal. For example, funds earmarked for street cleaning cannot be spent on repairing police cars. Appropriation funds can be unlimited in how a municipality spends capital.
Appropriations are the specific amounts of money that a government agency or municipality will put into each fund in the budget accounting system. Distributions typically occur when the municipality receives money from tax revenues. The accountants must separate each installment of the money and register it in the specific fund. This is a common process for collecting sales tax. Many municipalities use sales tax revenue to pay for a number of different purposes. Accountants must create quotas to account for the earned capital in each fund.
A lien is a specific use of tax revenue that may or may not be paid when the municipality places the lien. Most governments only receive tax revenue at specific times during the year. A lien allows the agency or municipality to pay for goods using an accounts receivable system, that is, payment on credit. Accountants will record the entry into the budget accounting system using a lien. Once the tax revenue comes in, the accountants will pay the levy and remove it from the ledger.