Which term describes a situation where a manager intentionally over-budgets expenses and under-budgets revenues?

Question

27-12-2023
Business

High School

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Which term describes a situation where a manager intentionally over-budgets expenses and under-budgets revenues?

Answer :

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sabareesanse47 sabareesanse47 · Answer 1 · 2024-12-24T01:54:06-05:00

Final answer:

The term describing the action of over budgeting expenses and under budgeting revenues is called creating a budget variance, a tactic some managers use to manipulate financial statements to show a year-end surplus.

Explanation:

The term that describes a situation where a manager purposely overstates expenses and understates revenues during budgeting is known as creating a budget variance. This practice can involve several tactics such as over-estimating expenditures, which leads to a year-end "surplus," or shifting revenue recognition dates to alter fiscal period balance. Managers may also underestimate property tax delinquency, delaying intergovernmental payments or utilizing one-time revenues, actions that can create false budget surplus appearances but should not be relied upon for operational funding. When attempting to expand their budget, managers may round up cost estimates or declare financial crises to encourage spending discipline despite potential credibility risks.

An annual budget deficit or surplus is the difference between tax revenue collected and spending over a fiscal year. Understanding budget variance is critical for public managers to identify inefficiencies and inform future budgeting decisions.