TO: Instructor, Program Manager
FROM: Student, Policy Analyst
OFFICE: POLS 1000 - 542
DATE: February 4, 2014
SUBJECT: Budget Basics

This memo responds to your request for information about Budget Basics. The main idea of this memo is to explain the basics of budgeting. Another purpose is to explain where federal revenue comes from and how the federal government spends its money. Then it will be explained what the budget process is and how the budget impacts America. Through these explanations and summaries it can be determined how the federal budget affects the lives of American citizens today compared to the past.

Budget Basics

1. A budget is commonly known as a perceptible explanation of a plan for a specified duration of time. The United States federal budget is a little more specific. It defines the amount of money the government is given in funds for the fiscal year, or the estimate of what they will be spending. When Congress first enforced that the president should present an executive budget, which was then broken down into separate funding bills. Each bill was considered, altered in some way, and then passed to show an estimate of how much federal spending there would be the following year. (Heniff, Keith, 2009)

2. The fiscal year normally runs from October all the way through the end of September for the federal government, so each period is approximately 12 months. During this period, annual financial statements are calculated for certain organizations or businesses. Before the year 1976, the fiscal year started on July 1 and ended on June 30 the following year. The Congressional Budget and Impoundment Control Act of 1974 changed this to grant Congress more time to report a budget annually. (Schmidt, Shelley, and Bardes, 2013, p. 215)

3. Revenue represents the amount of money that the federal government brings in, or receives, each year. This is found by calculating prices of items sold and multiplying that by the amount of items sold. For the federal government, it’s the money that is received from securities sales, taxation, grants or transfers, and any sales that are made. (Investopedia)

4. Expenditure is how a company spends their funds through payments of cash for services or goods. So, an increase in expenditure, for example, just means that more money is being spent. (Investopedia)

5. Mandatory spending means that money must be spent on certain services and programs, which is mandated by the federal law. An amount of money is required to be budgeted and set aside for programs that will be paid for by law. (Sullivan)

6. Discretionary spending is much different than mandatory spending, in that it is optional, while mandatory spending is not. It’s basically like having an allowance, where it doesn’t really need to be spent, but it’s there for when it’s needed. (Sullivan)

7. Surplus typically occurs when the income taken in is far greater than the expenses. In some cases this can be good like when purchasing an eight pack of batteries but finding out there was only four needed. Extra supply is ...

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