Line item budget definition
/What is a Line Item Budget?
A line item budget is a form of budget presentation that clusters proposed expenses by department or cost center. This method of aggregation more easily shows which departments and cost centers are absorbing the bulk of an entity's funds. The presentation typically shows the actual expenditure or budget from the prior period for comparison purposes, so that one can quickly see if there are significant changes budgeted from the prior period. This format represents an easy way to roll forward the budget into a new period.
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Disadvantages of a Line Item Budget
The simplicity of the roll forward may encourage users to not delve more deeply into the numbers, so that existing budgets tend to be perpetuated into the future. This tends to result in expenditure levels that support the current manner in which an organization is operated.
When to Use a Line Item Budget
Line item budgets are more commonly used in established businesses where the cost structure is carried forward from one period to the next.