Budgeting

Presented By:
Ankit Kamal
Akhilesh Rai
Aakash Mishra
Brijesh
What is budget?
A budget is a financial document used to project future
income and expenses. The budgeting process may be
carried out by individuals or by companies to estimate
whether the person/company can continue to operate with
its projected income and expenses.

“A budget is a financial statement prepared

prior to a predetermined period of time of d policy to be
persued during that period for the purpose of attaining a
given objectives.”
-I.C.M.A. London
 Budgeting
• Establishing a planned level of expenditures,
usually at a fairly detailed level. A company
may plan and maintain a budget on either an
accrual or a cash basis.
 Budgetary control
“The term Budgetary Control is applied to a
system of management and accounting
control by which all operations and output
and forecasted as far as ahead possible and
the actual results ,when known,are compared
with the budget estimates.”
-W. W. Bigg
 Objectives of Budgeting

The objectives of budgeting may be classifieds

into 3 groups:
Policy relating ●

●
To express the policies and objectives of the firm.
To prepare base for appraisal of work-performance.
objectives ●
To co-ordinate administrative, managerial units of the firm.

Administrative ●

●
To establish the system of decentralization of authority.
To develop a system of internal control so as to ensure efficiency and economy

objectives To establish balance between available funds and estimated expenditure.

●

To forecast in respect of sales, cost of production, cash flow etc.

Other
●

●
To clarify business planning.
●
To make effective control in stock, cost of production and cash.
 Objectives of Budgetary Control
• Essential for planning, controlling and also acts as an
instrument of coordination.
• Coordinates the actions of various departments.
• Budgetary control helps in eliminating wastes and raises
the profitability position of a business enterpris
• It makes a prediction about capital expenditure for future.
• It helps in amending deviations from the established
standards.
• It centralizes the control system.
 Importance of Budgeting

Budget and planning

Budget and co-ordination

Budget and Control

 Types of budget

Budget

On the basis of period On the basis of flexibility On the basis of functions

Long Short
other
current
term term Flexible Fixed Master Functional
 Long Term Budget

• Long term budget are related with the long term

planning of the business. The period of such
budget varies between five to ten years. These are
prepared in terms of physical quantities. Example-
Expenditure budget, R&D budget.
 Short term Budget
Short term budget is that budget which is
prepared generally for one to 5 years. These
are always prepared in monetary units and are
more precise than long term budget.
 Fixed Budget
• Fixed budget is a budget which is designed to
adjust the permitted cost levels to suit the
level of activity actually attained
Flexible Budget
A flexible budget is a budget that adjusts or flexes
for changes in the volume of activity. The flexible
budget is more sophisticated and useful than a
static budget, which remains at one amount
regardless of the volume of activity.
 Master Budget
The master budget Sales
is a detailed and
comprehensive
Production
analysis
of the first year of the
long-range plan. Distribution

It summarizes the
planned activities
Finance
of all subunits of
an organization.
 Functional Budget
A budget of income and/or expenditure applicable to a
particular function. A function may refer to a
department or a process. Functional budgets
frequently include the following: production cost
budget (based on a forecast of production and plant
utilization); marketing cost budget; sales budget;
personnel budget; purchasing budget; and research
and development budget. 
 Sales Budget
The sales budget is prepared by multiplying the
expected unit sales volume for each product by its
anticipated unit selling price.
Sales Forecasting

A sales forecast is a prediction of sales

under a given set of conditions.

Sales forecasts are usually prepared under

the direction of the top sales executive.

The sales budget is the result of decisions to create

Conditions that will generate a desired level of sales.
 Production budget
It is derived from the budgeted sales units (per sales
budget) plus the desired ending finished goods less the
beginning finished goods units.

Cost Budget
This budget is prepared after determination of the volume of
output in production budget and it presents an estimate of
cost of output planned for a budget period. This budget is
classifieds into many sub budgets like Cost of production
budget, Administrative cost budget, selling and
distribution cost budget, R&D budget, etc.
 Cash Budget
• The cash budget is a statement of
expected cash receipt and payments
• It help avoid surplus cash and
unexpected cash deficiencies
• Normally, the cash budget consists of
the following items:
Closing balance of cash = Opening
balance of cash + Receipts
-payment
Thank You