You are on page 1of 6

BUDGET

A budget is 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.

In summary, the 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.

Business start-up budget
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. All other expenses are like labour
factory overhead all freshmen expenses are also included into business budgeting.

Corporate budget
The budget of a company is often compiled annually, but may not be. A finished budget,
usually requiring considerable effort, is a plan for the short-term future, typically one
year (see Budget Year). While traditionally the Finance department compiles the
company's budget, modern software allows hundreds or even thousands of people in
various departments (operations, human resources, IT, etc.) to list their expected revenues
and expenses in the final budget.

If the actual figures delivered through the budget period come close to the budget, this
suggests that the managers understand their business and have been successfully driving
it in the intended direction. On the other hand, if the figures diverge wildly from the
budget, this sends an 'out of control' signal, and the share price could suffer as a result.

Event management budget
A budget is a fundamental tool for an event director to predict with reasonable accuracy
whether the event will result in a profit, a loss or will break-even. A budget can also be
used as a pricing tool.

] United States The United States federal budget is prepared by the Office of Management and Budget. This includes supplementary excess grants and when a proclamation by the President as to failure of Constitutional machinery is in operation in relation to a State or a Union Territory. While many companies would say that they do both. which are typically held in some type of financial spreadsheet application. drivers and the like. preparation of the Budget of such State . India The Budget of India is prepared by the Budget division of Department of Economic Affairs of the Ministry of Finance annually (Excluding the railway budget). and building accountability for the results. in reality the investment of time and money falls squarely in one approach or the other. it’s about people. if properly constructed. but the federal government is allowed to run deficits. Nearly all American states are required to have balanced budgets. Investments of time and money are devoted to perfecting these models. and the other on people. inputs and outputs. The companies that adhere to this approach have their managers develop their own budgets. Government budget For more details on this topic. United Kingdom The UK Budget is prepared by the Treasury under the direction of the Chancellor of the Exchequer. No matter how sophisticated models can get. and submitted to Congress for consideration. The budget of a government is a summary or plan of the intended revenues and expenditures of that government. the best information comes from the people in the business. One approach focuses on mathematical models. The focus is therefore in engaging the managers in the business more fully in the budget process. Congress makes many and substantial changes. can be used to predict the future. The other school of thought holds that it’s not about models. The focus is on variables. see Government budget. Invariably. There are two basic approaches or philosophies when it comes to budgeting. The first school of thought believes that financial models. Parliament rarely makes any significant amendments.

In a personal or family budget all sources of income (inflows) are identified and expenses (outflows) are planned with the intent of matching outflows to inflows (making ends meet). It usually covers a period in the short term future. and public relations in order to market the product or service. Expenditure budget: A budget type which include of spending data items. TYPES OF BUDGET • Sales Budget • Production Budget • Purchase Budget . These costs include labor. The production budget also estimates the various costs involved with manufacturing those units. materials. Personal or family budget For more details on this topic. Production budget: Product oriented companies create a production budget which estimates the number of units that must be manufactured to meet the sales goals. Budget types Sales budget: The sales budget is an estimate of future sales. with task budgets assigned to each. advertising. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing. Marketing budget: The marketing budget is an estimate of the funds needed for promotion. including labor and material. and other related expenses. Revenue budget: The Revenue Budget consists of revenue receipts of government and the expenditure met from these revenues. Cash Flow/Cash budget: The cash flow budget is a prediction of future cash receipts and expenditures for a particular time period. Tax revenues are made up of taxes and other duties that the government levies. In consumer theory. see Personal budget. Project budget: The project budget is a prediction of the costs associated with a particular company project. The project budget is often broken down into specific tasks. the equation restricting an individual or household to spend no more than its total resources is often called the budget constraint. often broken down into both units and dollars. It is used to create company sales goals.

The cash budget is also a functional budget. The adjustments with respect to the opening and closing stock positions that are policy decisions of the business are then made to prepare the production budget. flexible budget is one which is designed to change in relation Management Science-II Prof Indian Institute of Technology Madras to the level of activity attained. The product wise as well as regional break up of sales estimates are incorporated in the sales budget. The purchase budget is based on the production budget and the standard material consumption requirement for the production estimates. Management Science-II Prof Purchase Budget The purchase budget is another functional budget that estimates the purchase requirement of materials utilized in the production process. The cash budget helps the business to plan the project purchases as well as to provide for the loan requirements. Management Science-II Prof. • Expenditure Budgets • Cash Budget • Master Budget • Zero Base Budget • Flexible Budget Sales Budget Sales budget is a functional budget. The sales budget begins with the previous year actual and incorporates the likely changes Production Budget The production budget is prepared based on the sales estimate incorporated in the sales budget. In contrast. R. A fixed budget is one which is prepared keeping in mind one level of activity. Flexible budgets are prepared where the nature of business is such that it is difficult to predict the demand/sale of goods.Madumathi Expenditure Budgets Expenditure budgets may be drafted as fixed / flexible budgets. It is defined as one which is designed to remain unchanged irrespective of the level of activity attained. . The cash budgets also help in defining the repayment plans for short and long term loans of the business. Cash Budget A cash budget consolidates all the cash inflows and outflows for the business.

• Budgets enable management to plan and anticipate in areas of adequacy in working capital and scarce or type of availability of resources. • It act as a guide for management decisions when unforeseeable conditions affect the budget. the cash budget forecasts the loan requirements or short term investments that are to be made with excess cash at any specific time. Accordingly. an income and expenditure budget and budgeted balance sheet are prepared. Master Budget The overall or master budget summarizes the other functional budgets. Consolidating the functional budgets. The master budget is usually a one-year budget expressing the expected asset position and capital and liability positions for the projected year. Management Science-II Indian Institute of Technology Madras The cash budget is based upon the business policy of holding a certain amount as cash. action(s) can be taken by management if there are any material variances against budget. • Budgets are able to direct capital expenditure in the most profitable direction. What Are The Objectives Of Budgeting? • Budget provides the yardstick against which future results can be compared. This is the desired opening cash balance for the business. • Assist to plan and control earnings and expenditure so that maximum profitability can be achieved. Therefore there is a congruence of goals Department managers in a business make decisions . With the setting of budgets. the managers involved will better understand what the company expects from them. • With the establishment of the budget. • Assist in decentralizing responsibility on to each manager involved.