Fund accounting developed from legal compliance and resource limitation issues. Spending Focus Private sector focuses on earnings and changes in business's total net resources. Governments focus on changes in current spendable resources rather that total resources. Government limitation has short-term focus typically on operating budget. Budgetary Reporting Private sector budget is simply a financial plan allowing for change and flexibility during fiscal year.
Governmental budget is heart of a system of checks and balances with limited flexibility.
The North Carolina School Budget and Fiscal Control Act mandates a uniform budget format and requires the adoption of an annual budget resolution for all funds except monies included within the expendable trust fund. Budgets are adopted on a basis consistent with GAAP, except for revenues and expenditures of the debt service fund which is included in the budget of the capital projects fund and the enterprise fund which is budgeted on the modified accrual basis. Legal provisions conflict with GAAP in that there is no authorization for the board to maintain a debt service fund even though the statutes allow continuing contracts for capital outlay purchases. As required by the statutes, the board maintains encumbrance accounts under which purchase orders, contracts, and other commitments for the expenditure of funds are recorded in the governmental funds in order to reserve that portion of the applicable appropriation. Outstanding encumbrances at the end of the year do not constitute expenditures and are either charged to an appropriation in the following year or the contractual commitment is cancelled.