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GRETAER NOIDA
ASSIGNMENT ON-
BUDGETTING
MEANING:
Literally the word ‘budget’ means a leather bag or sachet to carry official paper in.
From that association, it came to mean those papers themselves, more particularly the paper
containing the financial proposals for the year.
The word “budget” derived from the old English word “budgettee” means a sack or pouch which
the chancellor of the exchequer used to take out his papers for laying before the parliament, the
Government, the financial scheme for the ensuring year. Now the term budget refers to the
financial papers not the sack.
ABOUT BUDGET:
Executive programme: Budget should go hand in hand with programming under the direct
supervision of chief executive.
Budget unity: All receipts should be recovered into one general fund for financing all
expenditure.
Detailed speciation: Receipts & appropriation should be specific for to transfer the items
Prior authorization: Budget execution should stay strictly within the legislative authorization &
should be checked by an auditing agency reporting to the legislature.
PURPOSE OF BUDGETING:
Budget supplies the mechanism for translating fiscal objective into projected monthly
spending pattern.
Budget enhances fiscal planning & decision making.
Budget clearly recognizes controllable and uncontrollable cost areas.
Budget offers a useful format for communicating fiscal objectives.
Budget allows feedback of utilization of budget.
Budget helps to identify problem areas and facilities effective solution.
Budget provides means for measuring & recording financial success with the objectives
of the organization.
FEATURES OF BUDGET:
It should be flexible.
It should be synthesis of past, present & future.
It should be product of joint venture+ co-operation of executives/department heads at
different levels of management.
It should be in the form of statistical standard laid down in specific numerical terms.
It should have support of top management throughout the period of its planning
supplementation.
IMPORTANCE OF BUDGET:
Budget is a Numerical description of expected income & planned expenditure
for an organization for a specified period of time. It is a concrete, precise, picture of the total
operation of an enterprise/organization/institution in monetary term, i.e. finance.
The following points serves the importance of budget:-
Budget is needed for planning for future course of action 7 to have a control over all
activities in the organization.
Budget facilities coordinating operation of various department & sections for realizing
organizational objectives.
Budget serves as a guide for action in the organization.
Budget helps one to weigh the values & to make decision when necessary on whether one
is of a greater value in the programme than the other.
PRINCIPLES OF BUDGET:
Budget is an operational plan for a definite period, usually a year, expressed in
financial terms 7 based on expected income & expenditure.
CLASSIFICATION OF BUDGET:
1. Manpower budget: - includes wages and other benefits provided for regular and
temporary workers.
2. Capital expenditures: - includes purchase of land, buildings and major equipments of
considerable expenses and long life.
3. The operating budget: - includes the cost of supplies, minor equipment, repair and
overhead expenses.
ACCORDING TO TIME:
ACCORDING TO FUNCTION:
1. Sales Budget
2. Production Budget
3. Cost of Production Budget
4. Purchase Budget
5. Personnel budget
6. Capital Expenditure Budget
7. Cash Budget
8. Master Budget
ACCORDING TO FLEXIBILITY:
1. Fixed Budget
2. Flexible Budget
BUDGETTING PROCESS
Every head of the office is required to prepare budget estimates in respect
of salaries of establishment, contingent expenditure and various other expenses, rent of building
etc. In hospital requirements in respect of medicines, diet equipment, hospital contingencies,
surgical dressing, clothing, linen etc. are also needed to be worked out.
For budget preparation will include:-
· To receive and approve all forecast, departmental budgets, periodic report showing
comparison of actual and budgeted income and expenditure.
· To request for special studies of deviations from the budget and consider revision of budget to
meet changed conditions.
Business policies: - clearly defined business policies serve as basis for budget
preparation.
Statistical information: - In the form of figures, i.e. estimates regarding the budget terms
are essentials for budget.
Top level management: - support is essential to ensure successful instillation of the
budget programme.
Period of budget; - Length of budget period (usually a year) should be specified.
STEPS IN BUDGETING
Review the goals of the agency or hospital because these are most likely to receive
funding.
Review the objectives of the existing programme and written for proposal programme to
ensure that achievement of these objectives.
Existing programme are revised and proposal programme designed to maximum goal
achievement.
Manpower, capital and operating expenses are computed for each programme old and
new.
Alternative methods are identified for realizing designated objectives and price of each
alternative is determined.
Comparisons are made to determine which alternative is most cost-effective.
Budget requests is developed for the preffered programme indicates alternative method
for meeting the same objective, and explain why the recommended programme is
preferred.
Officers and supervisors to present their need for the coming year by a specified date.
Review the budget appropriation and actual expenditure for the current year.
Prepare the programme with new budget.
Determine the percentage of salaries of personnel.
Estimate the requirements for coming year from the information supplied as the
expenditure for supplies, equipments and repairs to date.
Prepare a summary of new needs, both personnel and material with data to support the
reques
BUDGET PLAN:
It is for the top, management to define the planning premises and provide
procedural details. In the committee after discussion, the members have the opportunity to plan
amongst themselves. A best possible plan combining the talents of the entire group thus emerges;
the approach enhances communication, coordination and harmony of various operational plans
and efforts.
BUDGET CONTENT:
The budget consists of a master budget supported by various functional and
supporting budgets. The master budget consists of:-
Revenue & Expenditure budget.
Balance sheet budget.
Funds flow budget
The initial draft budget contain proposal for additional manpower, equipment, space and any
other resources or changes in rate structure or operating system. Then these are discussed with
the top management, who after deliberating and considering all aspects either accept, reject or
suggest changes to the draft budget. Once the budget is accepted, the departmental manager is
committed to achieve the targets set.
BUDGET PERIOD:
The budget period indicates the time span covered by a budget. It is generally one year,
coinciding with the financial year, such as in construction or film industry, each job could have a
separate budget to coincide with the time required to complete the assignment. These are
consolidated in annual budget. Others are supplemented by long range plan, which covers 3 to 5
years period.
ROLES:
Is visionary in identifying or forecasting short & long term unit needs, thus inspiring
proactive rather than reactive fiscal planning.
Is knowledgeable about political, social & economic factor.
Demonstrate flexibility in fiscal goals setting in a rapidly changing system.
Anticipates, recognize & creatively problems-solves budgetary constraints.
Ensures that client safety is not jeopardized by cost constraints.
FUNCTIONS:
Identifies the importance of, & develops short & long range fiscal plan that reflects unit
needs.
Articulates and documents unit needs effectively to higher administrative level.
Assess the internal and external environment of the organization in forecasting.