Budget

• An itemized forecast of an individual's or company's

income and expenses expected for some period in the
future.
• An estimate of the income and expenses needed to
carry out programs for a fiscal year.
• a sum of money allocated for a particular purpose
• Budget (from French bougette, purse) generally refers to
a list of all planned expenses and revenues. ...
• A financial plan for spending and saving money.
• Budgeting is the key to financial management
 What is Budgeting?
• Budgeting is the process by which a financial
plan is used to estimate the results of future
operations.
• Budgets show how the organization will spend
the funding or resources acquired over a period
of time.
• Plans of action expressed in numbers.
• Budgets are instruments to help an organization
in setting standards of performance, in
measuring results, in working towards short and
long term goals, and isolating areas that need
extra attention.
 Why Budgets?
• A budget is the most fundamental and
most effective financial management tool
available to anyone.
• Yes, anyone—whether you are earning
thousands of dollars a year, or hundreds
of thousands of dollars a year. It is
extremely important to know how much
money you have to spend, and where you
are spending it.
 Purpose
• A budget can provide guidelines for managing
future investments and expenses.

• With a budget, an individual is able to carefully

look at how much money they are taking in
during a given period.
• To satisfy a requirement by government or other
funding agencies
 FUNCTIONS OF BUDGETING
The two basic functions of budgeting are
planning and control.

PLANNING CONTROL

Encompasses the entire process Involves COMPARING actual

of preparing the budget, from results with budgeted data,
initial Strategic direction through evaluating the differences, and
preparation of Expected financial taking CORRECTIVE actions
results. when necessary.

•The comparison of budget and

actual data can occur only after
the period is over and actual
accounting data are available.
 Budget Cycle
• Revenue forecast
• A summary of expected revenue from all sources
including business income, INAC, FNIHB, HRDC, CMHC,
and so on;
• The revenue forecast will help in two ways: creates a
summary of revenue to control receipt of funds; key to the
variance reports.
• Expenditure Forecast
• Prepare supporting schedules for each major expenditure
categories.
• Knowledge of cost behavior patterns (i.e., variable or
fixed expense) and the dependency of one expense type
on another (i.e., employee benefits is related to the
amount of wages) is often helpful in budgeting for
expenditures.
 Budget Cycle
• Cash Management
• The cash budget can be prepared from information
obtained from the budget and its supporting schedules
and other information pertaining to the receipt and
expenditure of cash.
• THE KEY TO EFFECTIVE FINANCIAL MANAGEMENT!!
• How many times have you heard this – its in the budget!!
• Expenditure and Variance Reports
• Variance is the difference between the actual results and
the budgeted results.
• Variances do not, by themselves, show why the budgeted
amounts were not achieved. The variances do however,
raise questions, and provide clues and direct attention.
 Budget Cycle
• Variances say that something is not as expected. They
do not tell you what went wrong. You must, through
analysis and investigation, determine the causes for the
variance.
• Mid-year and Year-end Reports
• Reports outline progress in programs and services.
• Program managers are accountable for results.
• Mid-year reports provide much valuable information for
the rest of the fiscal year. Readjust budgets.
• Mid-year review by end of October and year-end review
by end of May.
MUHAMMAD SHAKEEL
LATIF
 “A budget can help you achieve
your dreams.”
• Having a carefully planned budget and sticking
to it is a tried and tested way of achieving
dreams. Millions of people have done it.
• Here are some common benefits of having a
budget.
• You become aware of your income and
spending habits:
– You will learn where your money comes from and
where they go to.
 “A budget can help you achieve
your dreams.”
• You take control of your finances:
– You decide where and how you spend your
money.
– By planning ahead, you will not worry about
whether you have enough money to last until
your next paycheck.
– You learn to control or cut out unnecessary
expenses.
 “A budget can help you achieve
your dreams.”
• Allows you to take advantage of opportunities:
– By knowing your exact financial position, you can
decide to take advantage of opportunities that you
might otherwise miss. You will never wonder if you
could afford something.
• You free up extra money:
– If you plan your budget properly, you can do away
with hidden fees, penalties and interests on late
payments. This will result in extra money for you to
use for other purpose.
 Kinds of budgets:
• When it comes right down to it, you can budget any
activity in your organization that has a financial impact.
Two of the most common budgets are
• Cash budget: An estimate of a company's cash position
for a particular period of time.
• Operating budget: A business's forecasted revenues
along with forecasted expenses, usually for a period of
one year or less.
• Line items in your operating budget may include:
• Labor budget: The total labor cost to be expended for a
set period of time calculated by taking every person in an
organization, department, or project and multiplying the
number of hours they are expected to work by their wage
rates.
 Kinds of budgets:
• Sales budget: An estimate of the quantity of goods and
services that will be sold during a specific period of time.
• Production budget: A forecast thatstarts with the sales
budget's estimates of the total number of units projected
to be sold, then translates this information into estimates
of the cost of labor, material, and other expenses
required to produce them.
• Expense budget: An estimate prepared for travel,
utilities, office supplies, telephone, and many other
common business expenses for a given period.
• Capital budget: The total costs and maintenance fees
planned for your company's fixed assets.
 Kinds of budgets:
• Top down: Budgets are prepared by top management
and imposed on the lower layers of the organization. Top
down budgets clearly express the performance goals
and expectations of top management, but can be
unrealistic because they do not incorporate the input of
the very people who implement them.
• Bottom up: Supervisors and middle managers prepare
the budgets and then forward them up the chain of
command for review and approval. These budgets tend
to be more accurate and can have a positive impact on
employee morale because employees assume an active
role in providing financial input to the budgeting process.
 Kinds of budgets:
• Zero-based budgeting: Each manager prepares
estimates of his or her proposed expenses for a specific
period of time as though they were being performed for
the first time. In other words, each activity starts from a
budget base of zero. By starting from scratch at each
budget cycle, managers are required to take a close look
at all their expenses and justify them to top
management, thereby minimizing waste.
• Each has its advantages and disadvantages, and each
approach can work well, although the pendulum is
clearly swinging in favor of the bottom up approach.
EJAZ ALI
 Budgeting Techniques:
There are basically four methods of
budgeting, although most organizations
are likely to prepare budgets using a
combination of these methods.  The four
basic methods are:
• Traditional historic budgeting
• Zero-based budgeting
• Priority-based budgeting
• Activity-based budgeting
Traditional historic budgeting
Zero-based budgeting
Priority-based budgeting
Activity-based budgeting
NASIR ABBAS KHAN
Capital Budgeting Techniques
• Capital Budgeting Techniques
• A variety of measures have evolved over time to
analyze capital budgeting requests.  The newer
methods use time value of money concepts. 
Older methods, like the payback period, have
the deficiency of not using time value techniques
and will eventually fall by the wayside and be
replaced in companies by the newer, superior
methods of evaluation.
Very Important:
• A capital budgeting analysis conducts a
test to see if the benefits (i.e., cash
inflows) are large enough to repay the
company for three things:  (1) the cost of
the asset, (2) the cost of financing the
asset (e.g., interest, etc.), and (3) a rate of
return (called a risk premium) that
compensates the company for potential
errors made when estimating cash flows
that will occur in the distant future.
• Let's take a look at the most popular
techniques for analyzing a capital
budgeting proposal.
1.  Net Present Value (NPV)
2.  Internal Rate of Return (IRR)
3.  Modified Internal Rate of Return
(MIRR)
4.  Payback Period
Capital Budgeting Techniques
Net Present Value (NPV)

Internal Rate of Return (IRR)

Capital Budgeting Techniques
3.  Modified Internal Rate of Return
(MIRR)

4.  Payback Period

WAHEED AHMED
 Seven Effects of Budgeting In
Planning
• Know what is going on

• Control
 Seven Effects of Budgeting In
Planning
• Organization

• Communication
 Seven Effects of Budgeting In
Planning
• Take advantage of opportunities

• Extra time
 Seven Effects of Budgeting In
Planning
• Extra money