Appropriation

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Appropriation is the process of putting money aside for a particular use. A business or a government may authorize money to allocate cash for operational needs.

Benefits of Appropriation

Appropriation can help a company or a government to allocate its resources efficiently and effectively. By setting aside money for specific purposes, appropriation can help to:

• Achieve strategic goals and objectives: A business or a government may use appropriation to help it match spending to its goals and objectives. For instance, a business may allocate money for R&D to promote innovation and competitiveness. To raise the standard of living of its population, a government may appropriate money for health and education programs.
• Manage cash flow and liquidity: A corporation or a government can use appropriation to manage its financial inflows and outflows and make sure they have enough money to pay its responsibilities and take advantage of opportunities. To reward its shareholders and draw in more investors, a corporation could set aside money for dividends. A government may set aside money for debt repayment in order to keep its borrowing power and credit standing.
• Control costs and risks: A business or government can monitor its spending with the aid of appropriation in order to prevent overspending or underspending. To deal with unforeseen catastrophes or emergencies, a business could allocate money for contingencies. A government may appropriate money for security and defense in order to safeguard its interests and sovereignty.

Challenges of Appropriation

Appropriation can also pose some challenges for a company or a government. Some of the challenges include:

• Estimating revenues and expenses: According to many hypotheses and situations, appropriation needs a business or a government to protect its income and costs. Due to uncertainties and changes in the market, economy, and environment, these predictions could not be precise or dependable. For instance, due to regulation or competition, a business may overstate sales or underestimate expenditures. Recession or inflation may cause a government to overestimate tax receipts or underestimate spending.
• Balancing competing needs and interests: A business or a government must prioritize its requirements and interests in relation to numerous stakeholders and objectives in order to be deemed appropriate. These wants and needs, though, could not be similar to or consistent with one another. A corporation might have to decide between investing in expansion and paying dividends, for instance. A government may have to decide whether to invest money in infrastructure or social welfare.
• Adapting to changing circumstances: A business or a government must alter its expenditure plans through appropriation in response to evolving conditions. Yet, due to political, legal, or contractual restrictions, these alterations might not be simple or practical. For instance, due to contractual obligations or consumer expectations, a business may not be able to decrease its fixed expenses or raise its prices. A government can be constrained from increasing taxes or reducing mandatory spending by the law or public opinion.

Examples of Appropriation

Here are some examples of how appropriation works in finance:

1. Corporate appropriation: In accounting, appropriation refers to how a company distributes its profits among shareholders or reserves. For example, Altria Group Inc., a tobacco giant, appropriated its cash and profits in the nine months to Sep. 30, 2018, as follows:

• Net earnings: $6.97 billion
• Dividends paid: $4.38 billion
• Share repurchases: $1 billion
• Retained earnings: $1.59 billion

2.  Government appropriation: In budgeting, appropriation refers to how a government allocates its funds among various departments or programs. For example, the U.S. federal government appropriated its funds for fiscal year 2019 as follows:

Total budget authority: $4.45 trillion
Discretionary spending: $1.32 trillion
- Defense: $686 billion
- Nondefense: $634 billion
Mandatory spending: $2.74 trillion
- Social Security: $1 trillion
- Medicare: $644 billion
- Medicaid: $412 billion
- Other: $684 billion
Net interest: $393 billion