Food-Service-Manual-for-Health-Care-Institutions

documentation, evaluation, and control of the department’s activities and expenses. Although
many acceptable systems exist for keeping records, record-keeping procedures should be standardized
enough to permit the comparison of the department’s actual expenses with the
expenses allowable under the operating budget. In addition, standardized record-keeping procedures
are valuable for comparing the food service department’s financial data with those of
other departments within and outside the institution. Especially during difficult economic
times, the challenge of containing costs while providing needed services requires that all health
care managers place a high priority on their function as financial managers and controllers.
Budgets as Tools for Financial Control and Management
Control Function and Financial Management
Financial control and management rely on the development and use of one or more plans that
estimate the organization’s proposed expenses for a given financial period and its proposed
means for meeting those expenses. These plans, called budgets, are almost always based on dollar
values. Nonmonetary budgets are expressed in nonfinancial terms, for example, labor hours
or units of output. Budgets provide managers with useful tools for allocating resources, setting
standards, evaluating performance, and controlling costs. Budgets are the foundation of most
control systems (Figure 11.2).
There are no uniformly defined budgetary terms. Some organizations use master budgets
to include the operating budget, a capital budget, a cash budget, and a budgeted balance sheet.
Cash budgets deal with cash on hand, accounts receivable, accounts payable, the cost of credit,
and cash flow. The budgeted balance sheet is a statement of the assets and liabilities of an
organization based on budget elements. For this book, two types of budgets are used, the financial
budget and the operating budget.
In general, the financial budget shows where the organization intends to get its cash for the
specified fiscal (or financial) period and how it plans to spend that cash. The financial budget
includes the cash-flow budget, the capital budget, and the balance sheet. The cash-flow budget represents
management’s best estimate of cash income and cash expenditures (or outlays) over a
specified period. The purpose of the cash-flow budget is to ensure that the organization will
have enough cash to meet its financial obligations at the time the obligations come due. The
capital budget is a plan for making and financing major improvements in or purchases of physical
facilities, equipment, or property during the period covered by the budget. The balance
sheet is a type of control budget that illustrates the organization’s financial condition on a particular
date. It shows what the organization’s assets are and how they are balanced against its
liabilities. All of these financial budgets are used by top-level managers in health care institutions.
However, the operating budget is the most important budget in the financial control and
management of the food service department.
The operating budget describes in financial terms the organization or department’s plan for
operations during a specified period of time—usually a fiscal year, or a period of twelve months
used for accounting purposes that does not necessarily coincide with the calendar year. It can
begin on any date and end on any date but must include 365 days, except for leap year, which
is 366 days. Most organizations and state and governmental agencies use fiscal year as the
period for a budget year. A calendar year is for the twelve-month period that begins on January
1 and ends December 31. An accounting period is the time period designated by an organization
for the purpose of financial reporting; this is usually monthly but in some instances may
be quarterly or semiannual. The operating budget includes the revenue budget, the expense
budget, and specific project budgets. The revenue budget shows all of the income from normal
operations that can be expected for the upcoming fiscal year. Similarly, the expense budget
shows all of the anticipated expenses for the fiscal year. Expense budgets deal with all anticipated
costs. This may be a single budget or broken down into subbudgets such as labor, materials,
overhead, and other operating expenses. Often, the revenue and expense budgets are
combined on one form. Budgets for special projects (such as extending catering services to the
community) are also included in the department’s operating budget.
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