Following on from our previous lectures, we emphasized that monitoring income is just as important as monitoring expenditure. Public Sector and nonprofit organizations usually have a mixed source of funding, with the majority coming from the public purse or government. This can be in the form of grants directly and indirectly refunding authorities and these are usually for a fixed amount over a specific period of time. Our income may include fundraising donations, fees, charges, rents and so on, some of which may arise from commercial activities. The stages in the monitoring process have been discussed earlier and are particularly important for income Which may be more difficult to control if the source of the income depends on third parties. In some organizations, monitoring income is undertaken by specialists department, leaving our budget holders free to focus on controlling expenditure.
However, many budget holders may have responsibility for monitoring both income and expenditure. The first step in the monitoring process is to establish the actual and in the case of income, there are two key elements the income received which is banked and appears on the accounting system. And the invoices or demands raised for goods and services served on third parties, but yet to be received. These are referred to as debt All receivables have been established the actual budget holders need to ensure that debt is are received. Otherwise the actual income could be overstated. If some of these debts become irrecoverable.
Outstanding debtors can turn into bad debts, which then has to be written off against the income. It should always be remembered that any shortfalls in income is equivalent to overspending. The difference between income and expenditure is referred to as a surplus or deficit for public sector and nonprofit organizations. This is the same as a profit or loss for a private sector, company or business. Some budget holders will have to Target surplus or deficit that needs to be monitored. If the objective is to have a balanced budget, this means that there should be no surplus or deficit and income should equal expenditure.
Our next section will cover commitment accounting.