How to Read a Line-item Budget

Line item budgets present data in an understable way.

Line-item budgets explain large amounts of detailed information in a format that makes them accessible even to those without accounting or budgeting backgrounds. Line-item budgets group financial statement elements into departments or cost areas and list each one individually, usually indicating how much money was allocated in a budget year, how much has been spent and how much was budgeted for the previous or future year. Government agencies often produce line-item budgets because of efforts to be transparent with the public, and some businesses produce them for internal distribution.

Instructions

1. Note the section heads. A line-item budget breaks into different areas such as “labor,” “office supplies” or "marketing". Paying attention to the sections will help you understand the different parts of the budget, recognizing the various accounting-designated departments.

2. Identify the columns across the top. If you don’t understand what each column indicates, a budget might confuse you. Columns break the budget down into categories such as dollar amount allocated, dollar amount expended or dollar amount from the previous year. Seeing how the columns compare, such as dollars allocated versus dollars expended, can give you insight into organization finances.

3. Read the lines across carefully. Budgets are usually full of text and figures, often in small type, and you can lose your place as you look across the columns for a particular line. If you are looking at the budget on printed paper, use a ruler or other implement to help guide your line of sight. If you are viewing it on a computer, zoom in.

4. Compare dollar amounts of the various lines. Line-item budgets allow you to compare different sections of the budget, giving insight into organization priorities. If you see the marketing budget is high while travel is low, it may say the organization values publicizing itself but doesn’t invest much in sending employees on business trips.

5. Look for shifting priorities. If the budget shows amounts for line items across years, you can see areas in which priorities are changing. If the line for employee bonuses goes from thousands of dollars in one year to zero dollars in the next, this may indicate financial difficulties or a change in compensation plans.

6. Watch for the bottom line. If a budget shows incoming funds versus expenditures, you can see whether the organization is finishing the budget period in the red or the black, giving you a sense of its financial health.

References

• Edsource.org: How to Read a School District Budget
• Massachusetts Board of Library Commissioners; Sample Line Item Budget
• Northern Arizona University; Parks and Recreation Management Program; Sample Line Item Format