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Notes On Budget

A budget is a financial plan that projects future income and expenses. Budgetary control involves establishing a budget, continuously comparing actual results to the budget, investigating variances, and taking corrective actions. The purposes of budgeting are to plan for the future, set goals, and evaluate performance. Key elements of effective budgeting include top management support, clear goals, and employee participation. Budgeting can encourage planning while also potentially hindering goals if the budget is incorrect. Common types of budgets include cash, sales, purchase, expenditure/flexible, master, marketing, project, zero-based, and long-term versus short-term budgets.

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Mesbahuddin Seddiq
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60 views

Notes On Budget

A budget is a financial plan that projects future income and expenses. Budgetary control involves establishing a budget, continuously comparing actual results to the budget, investigating variances, and taking corrective actions. The purposes of budgeting are to plan for the future, set goals, and evaluate performance. Key elements of effective budgeting include top management support, clear goals, and employee participation. Budgeting can encourage planning while also potentially hindering goals if the budget is incorrect. Common types of budgets include cash, sales, purchase, expenditure/flexible, master, marketing, project, zero-based, and long-term versus short-term budgets.

Uploaded by

Mesbahuddin Seddiq
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Budget and budgetary control:

Budget:
A budget is a financial document used to project future income and expenses.

Or:

Budget is a plan expressed in monetary terms. The plan answers such questions as what to
accomplish and how to accomplish a specific goal. It is prepared for future goals to be achieved.

Budgetary control:
The whole process of budget and budgetary control can be summarized in terms of a cycle.
Budgetary control system has the following cycle:

(i) Establishment (making) of a budget which sets out the plan for the budget period in
quantitative (monetary) terms.
(ii) Continuous comparison of actual and budgeted results.
(iii) Investigation into the variances arising out of such comparison, to bring out the
causes of those variances.
(iv) Corrective actions to remedy the causes in order to secure the defined objectives.
(v) Planning again, considering the feed-back and the changed conditions.

Purposes of budgeting:
 It compels managers to look ahead and work for the future.
 It compels the mangers to set goals and formulate plan to achieve that goal or goals.
 It provides a standard for performance evaluation.

Essentials of budgeting:
 Top management support
 Clear and realistic goals
 Full participation of employees at all levels.

Advantages and Disadvantages of budgeting:


Advantages:

 Budgeting encourages forward looking. (future)


 Helps to know the future outcome in advance.
 Motivates the employees to work hard in order to achieve the target.
 It also gives an idea to the managers how to control cost to achieve that goal.
Disadvanges:

 Budgeting may not be 100% correct and hence sometimes wrong budgeting may hamper
the correct way to achieve the goal.

Types of budget:
(1)Cash budget:
It is the budget which estimates the cash inflow and outflow of cash of a business concern.

(2) Sales Budget


The budget which is prepared to know about the total sales is called sales budget. It is both on
product wise as well as regional wise.

(3) Purchase Budget


The purchase budget is the budget that estimates the
purchase requirement of materials utilized in the production process. It is both direct and indirect
budget material estimates.

Expenditure budget:

The budget which estimates the total expenditure estimates. It is of two types.

(a) Fixed budget


(b) Flexible budget

Fixed budget: It is the budget which remains same and carries one level of activity only.

Flexible budget: It is the budget which is prepared for different level of activities.

(4) Master budget:


Master budget is usually a one-year budget expressing the expected asset
position and capital and liability positions for the projected year.

(5) Marketing budget:

The marketing budget is an estimate of the funds needed for promotion, advertising, and public
relations in order to market the product or service.
(6) Project budget:

The project budget is a prediction of the costs associated with a particular company project.
These costs include labor, materials, and other related expenses. The project budget is often
broken down into specific tasks, with task budgets assigned to each.

(7) Zero based budgeting:


It is the type of budget which starts everything from scratch. It doesn’t take into account the
previous calculations and starts everything from scratch.

(8) On the basis of time:


In terms of time the budget has been classified into two types (a) long term budget (b) short term
budget.

(a) Long term budget: Long term budget is the budget which is prepared for longer period
usually five to ten years or more.
(b) Short term budget: Short term budget is the budget which is prepared for short period
usually one year or less.

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