Line Item Budgeting

1216 Words5 Pages
Line Item budgeting is the most widely used approach in many organizations due to its simplicity and its control orientation. “It is referred to as the "historical" approach because administrators and chief executives often base their expenditure requests on historical expenditure and revenue data. One important aspect of line-item budgeting is that it offers flexibility in the amount of control established over the use of resources, depending on the level of expenditure detail (e.g., fund, function, object) incorporated into the document” (National Center for Education Statistics). The advantages of line item budgeting are that it offers simplicity; “you can easily budget for each area or department of your company based on historical expenditures required in previous years. If the amount of these expenditures has been consistent over a period of years, line-item budgeting can offer a simple and reliable means of anticipating expenses for the coming year while saving time and effort in the budget preparations” (Joseph). “Another advantage of a line-item budget is that it can be easy to justify the expenditures. Proposed expenditures are based on historical needs, which makes very little to dispute among departments within the organizations. This allows companies and business owners to maintain tight budgetary control, while reducing the possibility of frivolous spending” (Joseph). There are a few dis advantages of line item budgeting; it can create a phony analysis of expenditures. Budget preparers may simply accept the current situation and continue to use the same budgeting method that worked well in previous fiscal years. “By accepting the current situation it could eliminate the opportunity to take an in-depth look at each ... ... middle of paper ... ...rieved from http://smallbusiness.chron.com/differences-similarities-capital-operational-budgeting-33149.html National Center for Education Statistics' (n.d.). Budgeting, financial accounting for local and state school systems. Retrieved from http://nces.ed.gov/pubs2004/h2r2/ch_3.asp Navin, D. B. (n.d.). Guide to performance based budgeting. Retrieved from http://www.cgg.gov.in/workingpapers/WP-113-127.pdf Neurbrain. (n.d.). Performance based budgeting methodology and tools. Retrieved from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CDIQFjAB&url=http://icma.org/Documents/Document/Document/305288&ei=a-zpUrqhK8rkyAG5vYGICA&usg=AFQjCNFPSnJm4KYvsj9UjIGH7T-nxMHxSA&bvm=bv.60444564,d.aWc Seiu (2009, APRIL). performane based bdgeting: opportunities and considerations . Retrieved from http://www.focusintl.com/RBM127-performance_based_budgeting.pdf

More about Line Item Budgeting

Open Document