BUDGET

INTRODUCTION

What is BUDGET ?
The BUDGET is the statement of income and expenditure related to
comming financial year. It also indicates broad economic policy which
is designed to solve the basic problem of the economy.
Businesses use budgets to plan for future activities and to set various
goals and objectives within the company. They help the organization set
specific expectations which aid in evaluating performance throughout
the company. Budgeting helps organizations implement specific
strategies to meet goals and objectives. It is important to note that a
budget is an estimate and will often need to be adjusted over time.

A budget is generally a list of all planned expenses and revenues. It is

a plan for saving and spending. A budget is an important concept in
microeconomics, which uses a budget line to illustrate the trade-offs
between two or more goods. In other terms, a budget is an organizational
plan stated in monetary terms.

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Features and Purpose of BUDGET

Features of Budget :
1. It is presented on 20th of February
2. It is the statement of income and expenditure
3. Budget is in the state of estimation
4. Budget is presented for approval of the highest authority

Purpose of budgeting is to :

1. Provide a forecast of revenues and expenditures i.e. construct a model

of how our business might perform financially speaking if certain
strategies, events and plans are carried out.

2. Enable the actual financial operation of the business to be measured

against the forecast.

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Types of BUDGET

Budgets can be classified according to Time, Function, and Flexibility.

On the basis of TIME:
1. Long Term Budget :
Long term budgets are the budgets prepared for a long period of time.
Such budgets are basically prepared for large organisations, where they
need to plan all the sales, production and marketing activities before
hand. Such budgets are prepared with a long term view in mind.

2. Short Term Budget :

Short term budgets are the budgets prepared for a short period of time.
The normal retailers and shopkeepers follow such type of budgets. Here
prior planning is impossible.

3. Current Budget :
Current budgets are those budgets which are prepared according to the
current market situation in mind. Such budgets are highly flexible. It
keeps on varying from time to time.

4. Rolling Budget :

Rolling budget can be diffiend as a budget that is always available for

a specified future period by adding a period to the period that just ended.
It is also called Continuous Budget. Rolling budget is a budget prpared
with a fixed planning horizon. It is very useful for companies
experiencing rapid change, as they require forecasting for much shorter
time periods.

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On the basis of FUNCTION:

1. Sales Budget :
Sales budget is the most important budget while making the overall
budget for the organization for a fiscal year. It is important in this sense
that how would anybody make fiscal budget for organization if he don't
know about how much to sale or what are the organization's sale would
be. If you know the sales volume of units of product you want to sale in
a fiscal year then you will make production budget according to that
sales requirement in mind you will have production information in mind
you will purchase raw material, hire labour according to requirements.
The sales budget is an estimate of future sales, often broken down into
both units and dollars. It is used to create company sales goals.

2. Production Budget :

Product oriented companies create a production budget which

estimates the number of units that must be manufactured to meet the
sales goals. The production budget also estimates the various costs
involved with manufacturing those units, including labor and material.
3. Personal Budget :

A personal budget is a finance plan that allocates future personal

income towards expenses, savings and debt repayment. Past spending
and personal debt are considered when creating a personal budget. There
are several methods and tools available for creating, using and adjusting
a personal budget.

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4. Capital Expenditure Budget :

Investments in property, buildings and major equipment are called

capital expenditures. These are typically substantial expenditures both in
terms of magnitude and duration. The magnitude and duration of these
investments can justify the development of separate budgets for these
expenditures. Such capital expenditure budgets allow management to
forecast future capital requirements, to keep on top of important capital
projects, and to ensure that adequate cash is available to meet these
expenditures as they become due.
5. Cash Budget :

Cash budget is an estimation of the cash inflows and outflows for a

business or individual for a specific period of time. Cash budgets are
often used to assess whether the entity has sufficient cash to fulfill
regular operations and/or whether too much cash is being left in
unproductive capacities. A cash budget is extremely important,
especially for small businesses, because it allows a company to
determine how much credit it can extend to customers before it begins to
have liquidity problems.
6. Master Budget :

The master budget is a summary of the plans created for the subunits
of the company. It is used to create projected financial statements. The
master budget results in the creation of a pro forma income statement
and a pro forma balance sheet. These are also referred to as a budgeted
income statement and a budgeted balance sheet. Potential investors and
lenders want to see the projected financial statements in order to make
decisions that will ultimately affect the company.

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On the basis of FLEXIBILITY:

1. Fixed Budget :

A fixed budget is one used by a company that has no allowances for

possible changes in their budgetary needs. This is practical where a
company has some reasonable control over any possible expenses. And
can forecast with some degree off accuracy what their potential costs
may be for a given period. However, this means normally doesn’t have
much success when the company has too many variables in its future
expenses that can’t be predicted. In such cases any type of fixed budget
would not serve as a realistic fiscal plan for that given company for its
operating purposes.

2. Flexible Budget :

A flexible budget is a budget which is designed to change in

accordance with the level of activity attained. It is also known as
variable budget as the budget recognises the difference in cost
behaviour namely fixed and variable cost in relation to fluctuation in
output or turnover. The budget is designed to change appropriately
with such fluctuations.

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Impact of BUDGET on Economy

How will it impact our budget!

Head Cost Impact Values Description
(%)
Food -10.0% Processed food items, and farm
products, tea and coffee mixes,
breakfast cereals, branded dairy
products to become cheaper on duties
cuts
Transport 0.0% Although petrol/diesel prices were
raised before budget, there is no
impact on them in the budget.
However, with global crude prices
soaring to an all time high, petrol and
diesel prices may continue to rise in
the near future.
Electricity 0.0% No change, however impetus to add
more capacity may bring down
electricity rates for the consumers.
Cooking Gas 0.0% No change
Phone -2.0% Reduction in duties on wireless data
cards and electronic items to make
telecom instruments cheaper, mobile
phones to cost more due to 1% excise.
Medicine -5.0% Excise duties halved on all pharma
goods, further imports of medical
equipment and raw materials for
manufacturing of specified life saving
drugs made cheaper
Cosmetics/Toiletries -2.0% CenVAT rate cut on all items further
excise cuts on packaging material to
make various items marginally
cheaper.
Entertainment -2.5% Customs duty cut on set-top boxes,
various components used in
convergence products and sports
goods.

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Liquor 0.0% No change

Cigarettes 10.0% Filter and non-filter cigarettes brought
at par and excise duty hiked
Other Expenses -2.0% Lowering of CenVAT on all items,
cut in excise duties on writing,
printing and packing paper. Sports
Goods such as footwear etc to become
cheaper

CONCLUSION

The process of calculating the costs of starting a small business begins

with a list of all necessary purchases including tangible assets (for
example, equipment, inventory) and services (for example, remodeling,
insurance), working capital, sources and collateral. The budget should
contain a narrative explaining how you decided on the amount of this
reserve and a description of the expected financial results of business
activities. The assets should be valued with each and every cost.

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