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.

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 shortterm 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,

if the figures diverge wildly from the budget. including labor and material. etc. often broken down into both units and dollars. Tax revenues are made up of taxes and other duties that the government levies. The project budget is often broken down into specific tasks. and other related expenses. If the actual figures delivered through the budget period come close to the budget. 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. with task budgets assigned to each. Production budget: Product oriented companies create a production budget which estimates the number of units that must be manufactured to meet the sales goals. These costs include labor.human resources. materials. and the share price could suffer as a result. It usually covers a period in the short term future. Revenue budget: The Revenue Budget consists of revenue receipts of government and the expenditure met from these revenues. The production budget also estimates the various costs involved with manufacturing those units. this suggests that the managers understand their business and have been successfully driving it in the intended direction. this sends an 'out of control' signal. On the other hand. and public relations in order to market the product or service. IT. Budget types Sales budget: The sales budget is an estimate of future sales. advertising. Marketing budget: The marketing budget is an estimate of the funds needed for promotion. Cash Flow/Cash budget: The cash flow budget is a prediction of future cash receipts and expenditures for a particular time period. It is used to create company sales goals. .) to list their expected revenues and expenses in the final budget. Project budget: The project budget is a prediction of the costs associated with a particular company project.

R.Madumathi Indian Institute of Technology Madras to the level of activity attained. In contrast. Expenditure budgets may be drafted as fixed / flexible budgets. Flexible budgets are prepared where the nature of business is such that it is difficult to predict the demand/sale of goods Types Of Budget ‡ Sales Budget ‡ Production Budget ‡ Purchase Budget ‡ Expenditure Budgets ‡ Cash Budget ‡ Master Budget ‡ Zero Base Budget ‡ Flexible Budget Sales Budget Sales budget is a functional budget. The product wise as well as regional break up of sales estimates are incorporated in the sales budget. It is defined as one which is designed to remain unchanged irrespective of the level of activity attained.Expenditure budget: A budget type which include of spending data items. A fixed budget is one which is prepared keeping in mind one level of activity. flexible budget is one which is designed to change in relation Management Science-II Prof. The adjustments with respect to the opening and closing . 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.

The purchase budget is based on the production budget and the standard material consumption requirement for the production estimates. It is defined as one which is designed to remain unchanged irrespective of the level of activity attained. R.Madumathi Expenditure Budgets Expenditure budgets may be drafted as fixed / flexible budgets. The cash budget helps the business to plan the project purchases as well as to provide for the loan requirements. R. In contrast. flexible budget is one which is designed to change in relation Management Science-II Prof. Management Science-II Prof.Madumathi Indian Institute of Technology Madras to the level of activity attained. A fixed budget is one which is prepared keeping in mind one level of activity.Madumathi Indian Institute of Technology Madras Purchase Budget The purchase budget is another functional budget that estimates the purchase requirement of materials utilized in the production process. Flexible budgets are prepared where the nature of business is such that it is difficult to predict the demand/sale of goods.stock positions that are policy decisions of the business are then made to prepare the production budget. Management Science-II Prof. R. 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. The cash budget is also a functional budget. .

an income and expenditure budget and budgeted balance sheet are prepared. Master Budget The overall or master budget summarizes the other functional budgets.Management Science-II Prof. . Consolidating the functional budgets. Accordingly. The master budget is usually a one-year budget expressing the expected asset position and capital and liability positions for the projected year. R. the cash budget forecasts the loan requirements or short term investments that are to be made with excess cash at any specific time. This is the desired opening cash balance for the business.Madumathi Indian Institute of Technology Madras The cash budget is based upon the business policy of holding a certain amount as cash.