Introduction to Finance

Small Business Practice
*Jeff ry A. Timmons and Stephen Spinelli, 
New Venture Creation
, 7th Edition (New York: McGraw-Hill/Irwin, 2007), pp. 390–391.

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7.2 Federal Government Receipts and Expenditures
171
LEARNING ACTIVITY
Go to the website of the U.S. Department of Commerce, Bureau of Economic Analysis, 
http://www.bea.gov, and fi nd the current size of the U.S. gross domestic product (GDP) 
and its major components.
7.2
Federal Government Receipts 
and Expenditures 
The Budget 
In February of each year, the president submits to the U.S. Congress a proposed federal budget 
for the upcoming fi scal year that begins on October1 of the current year and ends on September 
30 of the following year. In Chapter 5, we defi ned the terms federal budget, budget surplus, and 
budget defi cit. Let’s review them here. The 
federal budget 
is the annual revenue and expendi-
ture plans that refl ect fi scal policy objectives concerning government infl uence on economic 
activity. We can also say that the federal budget sets out the annual receipts and expenditures, 
and any surplus or defi cit for the federal government. A 
budget surplus 
occurs when tax reve-
nues (receipts) are more than expenditures (outlays). A 
budget defi cit 
occurs when tax revenues 
(receipts) are less than expenditures (outlays). Congress reviews the proposed budget, makes 
changes, and passes specifi c spending and revenue bills to implement this next fi scal budget. 
Annual federal government spending may be either mandatory or discretionary. 
Mandatory 
spending
is government spending on entitlement programs that must be funded according to 
existing law. The two largest entitlement programs that require mandatory spending are Social 
Security and Medicare.