Distinguish leading from managing. Identify the objectives of short-term budgeting Understand the functions and composition of the budget committee. Diagram the relationships between operating and financial budgets. Prepare a master budget and its supporting schedules. Prepare operating and financial budgets using the flexible budget model. . Describe the different models of budgeting Relate budgeting to standards-setting, planning and controlling functions of management. oe At the end of th ey Am oS Ta fof) CoMCHAPTER 6 SHORT-TERM BUDGETING a Leading and The Science of Managing... Get Things Done Through People Organizations should have a purpose to exist. They have goals to accomplish. Strategic goals are set by thé corporate Board of Directors and are to be implemented by the executive and operating officers. Long-term goals are translated into short-term objectives W279... expressed in more specific and concrete terms by the corporate team. The Chief Executive ‘managing men! Officer or the President is primarily responsible in attaining the objectives of the organization. ————— Ino doing, the CEO and his executive team must use all available resources and applicable techniques in delivering results. Organizational resources consist of money, men, materials, machines, market, methods, technology, and network. There are plenty of managerial techniques applicable under various circumstances such as organizational design, policies, systems, standards, strategies, performance evaluation, rules, and regulations. The fundamental challenge faced by the CEO in managing organizational affairs is = communication. If communication breaks down along the organizational lines jy ,a3%ng of authority and responsibility, objectives cannct be set clearly, plans can not be framed js ettective effectively, actions can be misdirected, and performance could hardly be monitored. communication! First, there must be organizational purpose. Then, the strategy to accomplish the putpose. And, then; the organizational structure (or design) that defines how the business mill carry its strategy together with the policies and processes that go along with it. The business structure must allow free, flexible, and fluid streams of communication in many ways and directions in order to easily and effectively manage resources and information. The structure sets the tone of business admi p oma ration and operations. — In managing, the CEO needs to effectively communicate its goals and objectives, motivate people to act and get things done, develop planning and controlling models, set standards of performance and evaluation, gather results and feedback, monitor and evaluate performance, and develop ability to redefine p ds. inager has to orchestrate various busines: I ° on luce and deliver business keeping his job. To achi people and optimize other people”. To do this and to ut encourage employee particip the organizational objecti has the following uses: — #25,235 SHORT-TERM BUDGETING CHAPTER ¢ evaluation measures must be cleay ns, standards, and Inc tan a cera, iets. dunit ne feta penne ae an nna and organization’ men in the organization must baie ioet inaolied) ee een ae “h pas Lee i ional goals. This ¢ authority and responsibility. performa 2. Motivation. As communication lines are cleared and made more transparent, people wi ication derstand the end-results of organizational plans and acts. As they are made part in iwates Gonceptualizing the plans, they get involved and become more committed in attaining plans. This process moves people to act in accordance with organizational goals, Com 3. Standards. After the actions, results should be summarized and evaluated. At the very onset, the measurement to be used in evaluating performance must be established. These Sfecwe measures of performanice are called "standards’. They must be clearly defined and gmencetion agreed upon between the person, whose performance is evaluated, and the evaluator. Srpesstons if standards are too high or improbable to achieve, people get demoralized as there is no fair chance of getting a high performance rating, If standards are too low, people are not motivated to exert their best effort, thereby encouraging mediocre results. Standards are set to motivate. They are also an important basis for planning and controlling. Standards to be objective, are normally expressed in quantitative form (e.g,, amount, units, hours, kilometers, kilograms, number of invoices processed, etc.). Still, the most objective mode of expressing standards is in terms of money. 4. Planning. As standards are set, plans could be done better. A good plan must be SMART. (ie. specific, measurable, attainable, realistic, and time-bounded). Plans must be specificto be clear, measurable to be fair n the evaluation process, attainable to elicit outstanding people to relate to, and time-bounded to impress urgency 'a plan must be participated in by people'n increase one's desire in achieving Prans need tobe communicated ing a “sense of ownership’, Ources are needed?", “how do we do it?" need to be roximating the future and thods that could best sei7° 5. Coordination is communication: ate d systems, operations omnoaion et apes . les are mapped-out and lined-UP '°Melia SHORT-TERM BUDGETING 236 acces Strictly implemented, and offline and online performances monitored, s of plans may be done in-progress and remedial actions are devised and executed when necessary. All along, acts are done in accordance with organizational plans, goals and objectives. In this context, the importance of operational management cannot be undermined. The effectiveness and fitness of managerial judgment are tested. Resources are not only marshaled but are organized and operationally managed. Actions, processes, and transformations are done to meet the objectives of the organization 6. Controlling and Performance Evaluation. Controls are to be devised and installed prior to business and operational processes. Controls are also done during the process. Controls are classified as feedback controls, concurrent controls, and feedforward controls Feedback controls pertain to completed activities, concurrent controls refer to ongoirig processes, feedforwad controls anticipate and prevent problems. Questions such as, “what structures are best for our operations?”, “what systems and policies are best applicable under the circumstances?’, “why are we not meeting our targets or why ate we exceeding our targets?”, “why are machines and men not performing as expected?”, “what methods are applicable under the circumstances?”, “why is the market behaving differently?", and "why do our financial results differ from our estimates?” need answers. The Budget Committee... develop an executive team! Top executives should primarily subscribe to organizational objectives, The CEO must therefore exercise competence in leading and managing his top executives. Top executives must not only be capable and competent but must have “ownership” of organizational goals. There must be trust and openness in communication. One way to achieve this is through the creation of a Budget Committee. A Budget Committee is normally composed of top executives in the administrative, « nites operational and financial areas of business such as the Vice Presidents for Sales, © Production, Purchasing, Human Resources, Information Technology, Engineering and *"” Quality, Administration, and, most especially, Finance. The Budget Committee is also known in practice as the management committee (i.e, MANCOM) or executive committee (i.e, EXECOM). The Budget Committee, which is normally headed by a Budget Director, administers the budgetary process. It is concerned at developing the budget manual that includes a budget planning calendar and distribution instructions for all budget schedules. A budget planning calendar is the schedule of activities for the development and adoption of the budget. It includes a list of dates indicating when a specific information is needed to be provided to other departments or units until the entire budgetary process is completed. Abudget manual includes distribution instructions for all budget schedules to show that a segment’s budget is an input to another department or business unit in the preparation of their own budget. Without distribution instructions, someone who needs a particular anning rollingSHORT-TERM BUDGETING CHAPTER : 237 ked, and delays may occur. A planningenlenday integrat, the entire budgetary activities. Along the way, men atiould ee cuenta ‘an the Pua forms, and processes of the budgetary system. They shot lriedisedbiahetact © thei, ’ ‘own budget using the standard chart of accounts and ihe giedeiclzes Bud e sche the relevance of their schedule to another schedule, an race oii ‘The bottomline is, everybody should be made aware of and be involved, schedule might be overloo The Master Budgets... a financial process model! primarily in financial expression. When re plans expressed in quantitative form, Bree 4 ‘ understandable, ang plans are expressed quantitatively, they are more objective, measurable. The budgetary process is dependent on the organizational Structure and purposes. As such, the budget normally starts in answering the basic question, "Is there a market for the business?.” This question directs the master budgeting process to start in the sales budget The normal budgetary sequence is shown in Fig. 5.7 Fig. 6.1. The Master Budget Loop Sales Budget ———= Research and Development Budget Inventory Budget + Design & Engineering © Bu S1390N@ ONILVYAdO 1a9qn8 uaisvwHAPTER 6 cl SHORT-TERM BUDGETING a8 La rene eae business is driven by its demand, In this perspective, the ae aeete erorating Skpeee crite odes Budget. Ons it i projected the production cts na a eaareee budgets, and the budgeted statement of profit or loss follow (Le. i 1g budets). Then, the financial budgets leading to the budgeted statement of fone oe and the budgeted statement of cash flows with supporting schedules on collections from customers and payments to suppliers (je., financial budgets). The entirety of the operating and financial budgets comprise the master budgets of the enterprise at 2 given level of activity in a given business period. Hthere on on organizations resource such as materials and parts, direct labor hours, machine hours, financial, cultural, and regulatory aspects, the starting point in preparing the master budget shall be defined by such limitation The Sales Budget Sales indicate meeting customers’ wants, demands, needs, and desires. It fundamentally drives the creation of business activities. Itis the initiating motive of business organization and the genesis of normal business planning. Mathematically, sales are affected by the unit sales price and quantity sold. The unit sales price is affected by cost, competition, product substitutes, market trends, government regulations, demand and supply behavior, and estimated profit, among other things. The number of units sold is affected by the unit sales price Other factors influencing sales forecast include the past sales volume, general economic and industry conditions, relationship of sales to economic indicators (such as gross domestic product, gross national product, personal income, employment, prices and industrial production), relative product profitability, market research studies, advertising and other promotions, quality of sales force, seasonal variations, production capacity, and long-run sales trends for various products. In forecasting sales, factors that have strong correlation with sales pattern are identified and used, Basically, there are three wayS of making estimates for the sales budgets: Statistical forecasting based on analysis of general business conditions, market conditions, product growth curves, etc. b. Make an internal estimate by collecting the opinions of executives and sales staff. c. Analyze the various factors that affect sales revenue and then predict the future behavior of each of these factors. The estimated number of units sold could be estimated per product line, department, geographical area, model, and market classification. In projecting units to be sold, several forecasting techniques are ‘employed which normally apply the concept of probability and best estimates models, statistics, and simulation analysis. The study of probability and other forecasting techniques are reserved in the chapter for quantitative techniques applied in business.239. SHORT-TERM BUDGETING CHAPTER ‘ Sample Problem 6.1. Estimated Sales in Units and Pesos. oration is considering a three state economic conditions some macro studies, it has been agreed that the economy in the coming year may be 40% strong, 50% fair, and 10% weak. The projected number of units are 120,000 units, 90,000 units, and 50,000 units for strong, fair, and weak economic conditions, respectively, The budgeted unit sales price given the estimates in units solq ig P120. Five percent (5%) of the gross sales are estimated to be uncollectibles. The management of New Corp strong, fair, and weak. Based on Required: 1. Budgeted units to be sold for the coming year. 2. Budgeted amount of sales, net of doubtful accounts.? Solutions/Discussions: 1. The budgeted sales in units shall be determined as follows: Projected sales Budgeted Economy Units Probability Unit Sales A 120,000 40% 48,000 B 90,000 50% 45,000 @ 50,000 10% 5,000 Total 93,000 2. The budgeted net sales in pesos shall be: Budgeted sales in units 93,000 x Unit sales price Pp 120 Budgeted gross sales in pesos P 11,160,000 Less: Allowance for doubtful accounts (P11,160,000 x 5%) 558,000 Budgeted net sales in pesos P.10,602,000 —ee nce te see are pried and the sales amount already budgeted, the budgeted \ses would now be estim: i I withthe strategie plan of the business, 7" '2fMancial Budgets allin connection 'n the following discussions, the unit sales given Price and projected sales in units are normally The Production Budget Budgeted production is based on budgeted s : ales an i in is normally based on the number of units to be eae st for the but tion could psiad brocietion could bs Herve fom tha tedhional oetvoa ot deerCHAPTER 6 SHORT-TERM BUDGETING ao number of units sold which states that finished goods inventory-beginning plus production less finished goods inventory-ending equal budgeted sales. You tweak the formula and the computation for the budgeted production is as follows: Table 6.1 Pro-Forma Budgeted Production Projected Sales Add Finished goods invty ~ end Total goods available for sale x x Less Finished goods invty - beg x Budgeted Production x Once the budgeted production is set, the budgeted materials, direct labor, and variable overhead may now be prepared. ‘The budgeted fixed overhead is based on normal capacity (e.g,, normal production) which is considered flat or constant over the periods (eg, months) covered by the budget: It differs from the master budget where its level of capacity varies from one month to another. An illustration of Budgeted Production Schedule is presented on Schedule 3 of Sample Problem 6.3, on page 245, The Direct Materials Budget The raw materials budget is based on budgeted production. There are two (2) materials budgets to be estimated; 1 Budgeted direct materials used - a Budgeted direct materials purchases Budgeted direct materials used budget Multiply the budgeted produetion by the standard materials per unit of finished goods and you get the budgeted direct ‘materials to be used, or the budgeted direct materials Tequirements. This makes the standard costing system @ *sine qua non’ in the budgetary process. The standard cost is used in the preparation of the direct materials budgets. direct labor, variable overhead, fixed ‘overhead, selling expenses, and admi istrative( expenses budgets as well. Budgeted direct materials purchases budget Direct material purchases is direct materials used add the materials inventory ending, then deduct the materials inventory beginning,HORT CHAPTER, 4 SHORT-TERM BUDGETING APT; 241 f raw materials Used wh, | computation o or . . from the tradi purchases less raw materials inventor. This procedure is derive ae tray Ta te er asi tne row materials purchases budgets or ending. From this stat and Purchases Table 6.2 Pro-Forma Budgeted Direct Materials Used rable 6.2 Pro- id x (Budgeted production x Std. materials ‘Budgeted direct materials use en ‘Add: Mat. Invty ~ end hp Total materials for use * Less: Mat. Invty ~ beg it Budgeted direct mat. purchaces inunits —_X_ x Materials cost per unit yk Budgeted materials puchases in pesos MU=BPXSW/a An illustration of Budgeted Direct Materials Used and Purchases is presented in Sample Problem 6.4, Schedule 4, on page 245: The Direct Labor Budget Let us assume a labor-intensive of the budgeted direct labor ho: DLE=BPxSHIU per unit produced, The stand: " [aber hours to get the budgeted direct labor The standard direct labor hours Per unit and the standardcost sheet. : DIC=DIHx OLR/HCHAPTER 6 ‘SHORT-TERM BUDGETING 242 The Factory Overhead Budget The factory overhead should be budgeted separately for the fixed overhead and the variable overhead components, Fixed overhead is constant in total while the standard fixed overhead rate is computed based on the normal capacity. In short-term budgeting the standard fixed overhead rate is considered constant. Total variable overhead costs change in relation to the level of production while unit variable cost is constant. The computational guideline for the factory overhead is as follows: Table 6.4. Budgeted Factory Overhead Computations Budgeted variable overhead : igeted i ‘BVOHS DLN Budgeted fixed overhead i SVOR Budgeted total overhead : ; anol | : “ ) BFXOH= NHx. The standard hours per unit and standard overhead rates per hour are to be based on the standard cost sheet developed by the business. — An illustration of Budgeted Factor 7, page 247. The Budgeted Statement of Cash may be considered as the interest would boil down to the abil effectively monitor operating provide management vital info of cash management, pf use, as follows: fee243 SHORT-TERM BUDGETING CHAPTER ¢ Fig. 6.2 Cash Report Presentation Models ‘Model 1 - The Cash Budget Model ‘Model 2 - The Economic Cash Flow Mode] Cash balance - beg Px Cash tetra Bs Less: Cash ot -x Add: Cash peecbts (operating and i Hert pastes Ge deiobay x conte Sees ot Less: Cash payments (operating and Cash balance - end a investing) ae Cash balance before financing x + Financing inflows (outflows) =e Cash balance - end Px ‘Model 3 - The Statement of Cash Flow Model Cash from operating activities Cash inflows from operating activities x Cash outflows from operating activities LONI IES Cash from investing activities Cash from inflows from investing activities x Cash from outflows from investing activities _(x) x Cash from financing activities Cash inflows from financing activities x Cash outflows from financing activities ) Net change in cash and cash equivalents jhe cash management model separates the operating and investing cash performance before Budgeting’s the financing activities. This gives the management a vital Perspective on the ability of the Cispensable in Dusiness activities (ie, operating and investing) to generate cash. The financing section aging liguidity includes the receipts from short-term financing and long-term financing as well. However, the short-term financing is always prioritized for operating cash management purposes. The financing section also includes the payments to interest, principal, and return of equity Inflows: Outflows Sale of Noncurrent assets v Inflows, Acquisition of noncurrent assetsCHARTERS SHORT-TERM BUDGETING 244 Statement of Profit or Loss Inflows Outflows Cash sales ¥ Collections from credit customers Receipts from other revenue ” Cash purchases Payments to merchandise suppliers Payments to operating expenses Payments to other expenses 6448 Operating activities employ current assets and current liabilities. The difference of current assets and current liabilities is called the working capital. It is the fundamental resource used by the management in managing revenues, costs, and profit. As such, current items pertain to operating activities and are excluded from financing and investing activities. Investing activities basically refer to those of noncurrent assets and marketable securities. Financing activities essentially relate to long-term debt and equity transactions. Under the International Financial Reporting Standards, specifically in International Accounting Standard No. 7, interest expense may be classified as operating or investing activities depending on the reason of its incurrence. Accordingly, if interest expense is incurred to sustain the operating activities of the business, such interest is classified as an operating item. if an interest is incurred arising from the raising of financing money, such interest is classified as a financing item. Dividend income may be classified as either operating or investing activity depending on the nature of the investment from which the dividend is derived and the purpose of dividend distribution. An illustration for Cash Budget is presented in Sample Problem 6.7, Schedule 13, page 252: Schedule of Accounts Receivable Collections Credit sales are collected over a period of time. Collection patterns are to be established to more accurately estimate the inflows of cash from operations. A schedule of Accounts Receivable collections from credit sales is to be done. Total collections from receivables include those from credit customers and cash sales. Please refer to page 244 for example. Schedule of Accounts Payables Payments Credit purchases are not usually paid in the period of purchase. Normally, payments are spread over a number of months. A schedule of account payables payments is to be made to more accurately determine timing of cash outflows to merchandise suppliers. Please Tefer to page 246 for example245 SHORT-TERM BUDGETING CHAPTER ¢ Accruals and Prepayments There are also accrued and prepaid (deferred or unearned) income and expenses. in the budgeted statement of cash flows, only the cash portion of the accrued and prepay items are considered. Let us revisit the contents of the accrued and prepaid expenses accounts to determine the amount of expenses paid, as shown below: Accrued Expenses Prepaid Expenses = + + % PAID x | Beg Bal x Beg Bal x | INCURRED x End Bal x | INCURRED x PAID x | Beg Bal . x Using the T-account analysis, the "expenses paid" would be computed as: Operating expenses incurred Px Add: Accrued expenses, beg, P x Prepaid expenses, end Ey: = Total Less: Accrued expenses, end x Prepaid expenses, beg. we ys Operating expenses paid Bx In determining the amount of income received, let us als i ‘0 revisit the contents of accrued and deferred income accounts, as shown below. Accrued Income Deferred Income + Beg Bal RECEIVED Using the T-account analysis, the ‘income Feceived' is computed as follows: Income earned Pay Add: Accrued income, beg. P Deferred income, end _ x Total Less: Accrued income, end Deferred income, beg, Income receivedCHAPTER 6 SHORT-TERM BUDGETING ao Operating expenses Operating expenses budget should also be estimated in details in accordance with the principles of accrual accounting. There shall be separate budget schedules each for marketing, selling, and administrative expenses. It would be truly of great value if the expenses are further classified as direct to the segment or otherwise, and controllable or noncontrollable as to the authority of the ‘segment manager: Prete Operating expenses could also be classified based on the new model of business functions such asi reserach and development expenses, design engineering expenses, marketing &* expenses, distribution expenses, and customer services expenses. The production costs are assembled, grouped and reported as part of the cost of goods manufactured.and sold. =! Research and development x ASL PARLOS {1 PANGASINAN = Leading companies in their industry or line of business, or companies that operate in a 3 technology-based business environment, need to allocate resources for research and DEVE TE development to stay competitive and relevant in the upcoming period. Detailed research = ct Wi and development budget would provide important information to managers in their strategic and tactical decisions. Research has at least three phases: basic research, applied research, and developmental research. These researches are focused towards cost reduction, product improvements and development of new products. Distribution as to the overall budget allotment to these research phases and focuses should be clearly projected, summarized and presented Budgeting Models There are several budgeting models used by organizations. Some examples are flexible budgeting, fixed (or static) budgeting, continuous budgeting, zero-based budgeting, life-cycle budgeting, activity-based budgeting, kaizen budgeting, and governmental budgeting. Flexible budgeting separates costs as to either variable or fixed, In this model, budgeted Flexible Budgets costs are determined at any level of business activity. Flexible budgeting uses standard costs 1. ate to prepare budgets for multiple activity levels. Total fixed costs remain constant while total unas variable costs increase as production level increases. The budgeted costs based on actual conrerents level of production become the standard costs and are compared with the actual costs to get and analyze costs variances. nig An illustration of flexible budgets follows: Sample Problem 6.2. Flexible Budgeting The Luzon Corporation has a unit direct materials cost of P10, unit direct labor cost of P5, Unit variable overhead cost of P 4, factory rent paid of P200,000, factory depreciation of 400,000, and miscellaneous fixed overhead of P100,000. The company’s normal capacity, Which is also its maximum capacity, is 20,000 units. The budgeted costs at 70%, 80%, 90%, and 100% capacity are as follows:CHAPTER 6 ETING SHORT-TERM BUDG! 247 SHOR 70% 80% 90% 100% Capacity utilization rate aa 76,000 78,000 20,000 | Levels of capacity in units i Variable Costs: Rate / unit aaa ete P 180,000 P 200,000 Direct materials P10 so ai aaa Tc = j y Direct labor 000 Variable overhead 4 56,000 64,000 = = ~ Subtotal ai asiz660 00) 304,000 Z fo Subtotal b Fixed Costs | Rent 200,000 | _P-200,000 P 200,000 P 200,000 P 200,000 Depreciation 490000 | 400,000 400,000 400,000 400,000 ; Miscellaneous 100,000 L 100,000 100,000 100,000. 100,000 Sub-total P 700,000 | 700,000 P 700,000 P 700,000 a | Budgeted Production Costs { P-966,000 P 1,004,000 P 1,042,000 I P 1,080,000 There are several observations that we need to emphasize here! ¥ The costs are defined in their constant expression, variable costs is constant per unit while fixed costs is constant per total. | ¥ Total variable cost changes in relation with the change in capacity levels while total fixed costs remain unchanged. Fixed or static budgeting does not segregate costs into fixed and variable components Costs are estimated only at a single level of activity. Actual costs are compared with the budgeted costs regardless of the actual level of production and costs variances are obtained and analyzed accordingly, Continuous or rolling budgeting maintains a particular tir i i it ime frame (or peri vered in budgeting (say 12 months). When a time segment (e.g,, month) ea ae is dropped from the budget frame and a i ety eee new month is added to maintain the same period of time Zero-based budgeting (ZBB) does not consi Pepaced aaa ee) aoe bale Past performances in anticipating the future. t and packaged iviti briortized and justified astotheirincurence, The amie ce oo aetties: which must be Of all costs in the hope that cost: encourage objective examination budgetary units of the STREET fant Ace ee 2BB starts from the lowest . rmination of objectives, operations, and costs for each activity and the alt pdm alternative means of car ity. Dil Sree sah rs ego ei entreen sapere Handards are estab hed at activities are ranked according catia Pimmportance ae K: n package is prepared t; i vole t Bf es be Provide, including atleast one level eee Fie eat eh bidet pod ad cons re oeey can ane ach expen a cost-benefit perspective. Giecyele Life-cycle budgetin , 9 intends to account f budgeting chain’, from research and development ose incurred in the stages of the ‘vall® : Production, marketing, distributionCHAPTER 6 SHORT-TERM BUDGETING 2a upto customer services. Costing in this models important for pricing decisions. Revenues generated fromthe product should cover not only the costs of production but the entire business costs incurred. It is also analyzed in line with the product life-cycle concept where products have four life stages such as infancy (or start-up stage), growth stage, expansion stage, and maturity (or decline) stage. itis estimated that about 80% of all costs are already committed (may not yet be incurred) before the business begins. Life-cycle budgeting emphasizes the potential for locking in (designing in) future costs since the opportunity of reducing costs is great before production begins. Ina whole-life costs concept, the budget includes the “after- purchase costs closely associated with the life-cycle costs. After-purchase costs include the costs of operating, support, repair, and disposal incurred by customers Wholeslife cost equals the life-cycle costs plus the after-purchase costs. Life-cycle costing is related to target costing and target pricing. A target price is determined in a given market condition and costs and profit margin are adjusted accordingly. Activity-based budgeting is applied when the activity-based management system is used. It breaks down processes into activities and permits the identification of value-adding activities and their costs drivers. Activities are grouped according to their homogeneity and costs drivers are established per homogenous pool. It tracks down cost incurrence based on the behavior of its cost driver such as number of set-ups, downtime, number of units produced, machine hours, number of employees, square footage, number of kilowatt used, number of customer complaints, and many more. Kaizen (continuous improvements) budgeting assumes the continuous improvement of products or processes by way of small innovations rather than major changes. Budgets are normally not reached unless innovative improvements occur. Kaizen budgeting is based on learning curve theory where cost decreases as time passes by and experiences are gained. Kaizen is also related to product life-cycle costing. Governmental budgeting is not only a financial plan but is also an expression of public policy anda form of control having the force of the law. A government budget is alegal document, a law enacted by the congress, which mustbe complied with by heads and personnel of various government agenceis. Since government budgeting is not profit-centered, the use of budgets inthe appropriation process is of major importance. One budgeting concept in government budgeting is ‘line budgeting” where the emphasis is more on the control of expenditures. Each line expense should be disbursed according to the limits of the approved appropriations. Activity based budget Governmental budgeting