A line item budget is an accounting method that lists all of an organization's expenditures based on the department or cost center. Each department's expenditures are given a separate line on the budget. This method helps officers of a company or organization to determine the exact source of their expenses.
The line item budget allows an officer or manager of a company an easy way to keep track of expenditures. This type of budget is relatively simple and easy for anyone to understand, which is the main reason it is so popular. A manager is able to quickly determine what departments of a company are taking the biggest bite out of the total budget. This helps managers make decisions on where to cut back if any cuts are needed.
The line item budget also has some disadvantages that managers need to keep in mind. This type of budget does not allow for the justification of expenditures. If a department is responsible for producing large amounts of revenue for the company, for example, then its expenditures are an asset, not a liability. Managers need to ensure that they have sufficient access to all crucial information concerning a department's overall performance before making any budgetary decisions.