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INTRODUCTION TO BUDGET AND FINANCE

Modified from a set by Chip GermanUniversity of Virginia

2015

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INTRODUCTION TO BUDGET AND FINANCE

FUN – da – mentals?

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Session Goals

▪ Common financial terms

▪ Typical b dgeting methodologies

▪ Cond ct a financial data!analysis e"ercise tos pport ma#ing a case

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OBJECTIVES OF BUDGETING, FINANCIALPLANNING AND REPORTING

▪ $ss re proper application of general acceptedacco nting principles %G$$&'

▪ $cc rately reflect the financial health of theinstit tion(

▪ )ffectively allocate* se and managereso rces(

▪ $ssist +ith acco ntability and reporting needs

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UNDERSTANDING FINANCIAL STATEMENTS

To learn abo t the formal financial reporting doneby non!profits %incl ding colleges and

niversities'* a helpf l reference,

http,--+++(acco ntingcoach(com-nonprofit!acco nting-e"planation-2

To see comple" e"amples,

http,--+++(virginia(ed -e"ecvp-reports(html http,--+++(baylor(ed -content-services-doc ment(php-2.25/.(pdf

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A SAMPLING OF COMMONFINANCIAL TERMS AND CONCEPTS

▪ General edger ▪ Chart of $cco nts▪ )nc mbrance

▪ iscal ear ▪ $ dit▪ 3iscretionary vs( 4on!discretionary )"pendit res▪ ponsored 6esearch Costs▪ Capital vs( 7perating 8 dgets▪ )ndo+ment

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GENERAL LEDGER OR GL

The General edger is the main acco nting recordand it incl des seven basic categories,

▪ $ssets▪ iability▪

7+ner9s e: ity▪ 6even e▪ )"pense▪ Gains▪ osses

The listing of elements %acco nt names' in the Gby +hich financial transactions are classified iscalled the Chart of Accounts (

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CHART OF ACCOUNTS

▪ The Chart of $cco nts is sed to classifyfinancial transactions* sing s chclassifications as f nd types* reven e-e"pense

categories* and asset-liability codes(

▪ )ach element in the classification system isassigned a name and a ni: e n mber by+hich it can be identified(

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ENCUMBRANCE

▪ $n enc mbrance is a designation in theacco nting system that sets money aside for aspecific f t re se( )nc mbrances maysometimes cross fiscal years(

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FISCAL YEAR

▪ $ fiscal year is the one!yearterm associated +ith anorgani;ation<s b dget( =t often does notcorrespond to a calendar year(

▪ Many fiscal years begin > ly 1 and end the ne"t> ne .0 and are named for the closing year* e(g(*?-1-1@ ! /-.0-15 is 15( or p blic instit tions*

fiscal years s ally begin and end in concert +iththeir respective state government<s fiscal years(

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AUDIT▪ The f nction of a dit in an acco nting conte"t

is to provide an independent assessment of afinancial system<s internal controls %ho+reso rces are directed* monitored* and

meas red' and to eval ate the validity andreliability of the information that systemmanages and prod ces(

▪ $n a ditor cond cts tests and renders opinionsbased on the res lts of those tests(

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DISCRETIONARY VS NON-DISCRETIONARYE PENSES

▪ Dis!"e#iona"$ e%&enses , the costs of thingsyo choose to do

▪ Non-'is!"e#iona"$ e%&enses , the costs of

things yo m st do %beca se of legislative orcontract al re: irements* for e"ample'(

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SPONSORED RESEARCH COSTS

▪ Costs of cond cting sponsored research arein t+o categories,

▪ 'i"e!# %s ch as salaries of those act allycond cting the research'

▪ in'i"e!# %s ch as the proAect<s share of

b ilding!operation costs and of the costs ofoperating the camp s net+or#'(

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CAPITAL VS OPERATING BUDGETS

▪ Ca&i#al( involves instit tion<s investments inassets li#e ne+ or replacement high!val ee: ipment-machinery* ne+ b ildings B maAorrenovations* comp ter hard+are* etc(

▪ O&e"a#in)( the means by +hich the instit tionplans for its normal* ann al operating

e"pendit res* incl ding those for personneland their fringe benefits and for each year<spayment on long!term obligations(

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UNIVERSITY BUDGETING METHODOLOGIES

▪ =ncremental

▪ 6esponsibility!-reven e!centered

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INCREMENTAL BUDGETING

▪ Most common in higher ed▪ 3ecisions made centrally* top!do+n

▪ C rrent b dget is baseD▪ =ncrementsD %salary changes* inflation*

approved percentage increases' are added to

b ild ne"t year<s b dget

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RESPONSIBILITY-+REVENUE-CENTEREDBUDGETING

▪ Gro+ing sage▪ Moves higher percentage of reven e B cost

o+nershipD from center to academic nits▪ Generally distrib tes t ition reven es to

schools B colleges based on their generationof reven es

▪ Uses s bventionD +hen needed

▪ $dditional central f nds sed to f nd ne+strategic initiatives

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BAYLOR S ANNUAL BUDGET PREPTIMELINEFOR FISCAL ./0 10+/+/2-2+3/+/04

▪ all 201@ E 6egents approve t ition* fees* B totalb dget for iscal 201/

▪ 11-.-1@ E 4otification of g idelines B d e dates▪ &hase 7ne,

▪ 11-2@-201@ E &ersonnel B capital b dgets d e▪ 12-5-201@ E Contract services b dget d e

▪ &hase T+o % ebr ary B March',▪ Ma#e net ;ero changes to b dget

▪ .-.1-2015 E inal b dgets d e▪ Mid!May 2015 E can begin sing ne+ b dget▪ /-1-2015 E 8 dget is no+ c rrent

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DATA ANALYTICS E ERCISE