Budgeting and Its Types
Budget
A budget is a detailed plan of operations that is predetermined for a particular period. Budgets are quantitative or financial statements prepared for the purpose of attaining a particular objective. It is listing of all expenses and incomes i.e. planning them in advance to meet certain circumstances. In other terms, a budget is an organizational plan stated in monetary terms.
It is a plan that outlines an organization's financial and operational goals. So a budget may be thought of as an action plan. Planning a budget helps a business allocate resources, evaluate performance, and formulate plans.
While planning a budget can occur at any time, for many businesses, planning a budget is an annual task, where the past year's budget is reviewed and budget projections are made for the next three or even five years.
The basic process of planning a budget involves listing the business's fixed and variable costs on a monthly basis and then deciding on an allocation of funds to reflect the business's goals.
Businesses often use special types of budgets to assess specific areas of operation. A cash flow budget, for instance, projects business's cash inflows and outflows over a certain period of time. Its main use is to predict business's ability to take in more cash than it pays out.
The process for preparing a monthly budget includes: • Listing of all sources of monthly income • Listing of all required, fixed expenses, like rent/mortgage, utilities, phone • Listing of other possible and variable expenses
Advantages of Budgeting 1. A basis for internal audit for regularly evaluating departmental result 2. Scarce resources can be allocated in an optimal way 3. It forces management to plan ahead so that long term goals are achieved 4. Communication and coordination throughout the firm improves 5. Participation in budget has a motivational impact on the work force 6. Areas of efficiency and inefficiency are identified 7. People are made
A budget is a detailed plan of operations that is predetermined for a particular period. Budgets are quantitative or financial statements prepared for the purpose of attaining a particular objective. It is listing of all expenses and incomes i.e. planning them in advance to meet certain circumstances. In other terms, a budget is an organizational plan stated in monetary terms.
It is a plan that outlines an organization's financial and operational goals. So a budget may be thought of as an action plan. Planning a budget helps a business allocate resources, evaluate performance, and formulate plans.
While planning a budget can occur at any time, for many businesses, planning a budget is an annual task, where the past year's budget is reviewed and budget projections are made for the next three or even five years.
The basic process of planning a budget involves listing the business's fixed and variable costs on a monthly basis and then deciding on an allocation of funds to reflect the business's goals.
Businesses often use special types of budgets to assess specific areas of operation. A cash flow budget, for instance, projects business's cash inflows and outflows over a certain period of time. Its main use is to predict business's ability to take in more cash than it pays out.
The process for preparing a monthly budget includes: • Listing of all sources of monthly income • Listing of all required, fixed expenses, like rent/mortgage, utilities, phone • Listing of other possible and variable expenses
Advantages of Budgeting 1. A basis for internal audit for regularly evaluating departmental result 2. Scarce resources can be allocated in an optimal way 3. It forces management to plan ahead so that long term goals are achieved 4. Communication and coordination throughout the firm improves 5. Participation in budget has a motivational impact on the work force 6. Areas of efficiency and inefficiency are identified 7. People are made