BUDGETING

DONE BY
V.GAYATHRI DHARSHINI
2016701520
 CONTENT

Budget and Budgetary Control

Types of Budgets
Preparation of Financial Budget.
BUDGET AND BUDGETARY CONTROL

BUDGET

 Budget is an itemized summary of likely income and expenses

for a given period.
 It is an inevitable tool to help you prioritize your spending and
managing of money.

Budget is being defined as “a plan qualified in monetary terms

prepared and approved prior to a defined period of time
usually showing planned income to be generated and/or
expenditure to be incurred during that period and the capital
to be employed to attain a given objective.”
BUDGETARY CONTROL
Budgeting
Budgeting represents the formation of the budget with the help
and coordination of all or the various departments of the firm.
Budgetary Control
Budgetary control is a tool for the management to allocate
responsibility and authority in planning for future and to
develop a basis of measurement to evaluate the efficiency of
operations.
A budget is a plan of the policy to be pursued during a
defined time period.
All the actions are based on planning of budget because
budget is prepared after studying all the related activities of
the company.
BENEFITS OF BUDGETING
Gives you control over money.
Keeps you focused on the monetary
goals.
Helps you organize your spending and
saving.
Provides you with an early warning of
potential problems.
Hepls you determine and deal with debts.
ADVANTAGE OF PRODUCING A BUDGET IN
THE BUSINESS FIRMS:
Budget gives a communication ground to the top
management with the staff of the firm who are
implementing the policies of the top management.
Budgetary control helps in coordinating the economic
trends, financial position, policies, plans, and actions
of an organization.
Budgetary control also helps the management to ensure
and control the plan and activities of the organization.
Budgetary control makes it possible by continuous
comparison of actual performance with that of the
budgets.
DIVISIONS IN BUDEGET
Budgeting can be classified into five
major divisions. They are:
◦ Master Budget

◦ Operating Budget
◦ Cash Flow Budget
◦ Financial Budget
◦ Static Budget
Master Budget
A master budget is an aggregate of a company's
individual budgets designed to present a complete
picture of its financial activity and health.
The master budget combines factors like sales,
operating expenses, assets, and income streams to
allow companies to establish goals and evaluate
their overall performance, as well as that of
individual cost centres within the organization.
Master budgets are often used in larger companies
to keep all individual managers aligned.
Operating Budget
An operating budget is a forecast and analysis of
projected income and expenses over the course of a
specified time period.
To create an accurate picture, operating budgets must
account for factors such as sales, production, labor
costs, materials costs, overhead, manufacturing costs,
and administrative expenses.
 Operating budgets are generally created on a weekly,
monthly, or yearly basis.
A manager might compare these reports month after
month to see if a company is overspending on supplies.
Cash Flow Budget
A cash flow budget is a means of projecting how and when
cash comes in and flows out of a business within a specified
time period.
It can be useful in helping a company determine whether it's
managing its cash wisely.
Cash flow budgets consider factors such as accounts payable
and accounts receivable to assess whether a company has
ample cash on hand to continue operating, the extent to
which it is using its cash productively, and its likelihood of
generating cash in the near future.
A construction company, for example, might use its cash
flow budget to determine whether it can start a new building
project before getting paid for the work it has in progress.
Financial Budget
A financial budget presents a company's
strategy for managing its assets, cash flow,
income, and expenses.
A financial budget is used to establish a picture
of a company's financial health and present a
comprehensive overview of its spending
relative to revenues from core operations.
 A software company, for instance, might use
its financial budget to determine its value in the
context of a public stock offering or merger.
Static Budget
A static budget contains elements where expenditures
remain unchanged with variations to sales levels.
Overhead costs represent one type of static budget, but
these budgets aren't confined to traditional overhead
expenses.
Some departments may have a fixed amount of money
set in budget to spend, and it is up to managers to make
sure such amounts are spent without going over-budget.
This condition occurs routinely in public and non-profit
sectors, where organizations or departments are funded
largely by grants.
OTHER TYPES OF BUDGET
SALES BUDGET
PRODUCTION BUDGET
CAPITAL BUDGET
CASH FLOW/CASH BUDGET
PROJECT BUDGET
CONDITIONAL BUDGET
MARKETING BUDGET
REVENUE BUDGET
EXPENDITURE BUDGET
OTHER TYPES OF BUDGET
Sales budget
◦ The sales budget is a statement of planned sales in terms of quality
and value. It forecasts what the company can reasonably expect to
sell to its costumers during the budget period.
Production budget
◦ It gives an estimate of the number of units that must be
manufactured to meet the sales goals.
◦ The production budget also estimates the various costs involved
with manufacturing those units, including labour and material.
Capital budget
◦ It is used to determine whether an organization's long-term
investments such as new machinery, replacement machinery, new
plants, new products, and research development projects are worth
pursuing.
OTHER TYPES OF BUDGET
Cash flow/cash budget
◦ It is a prediction of future cash receipts and expenditures for a
particular time period.
◦ It usually covers a period in the short-term future.
◦ The cash flow budget helps the business to determine when income
will be sufficient to cover expenses and when the company will need
to seek outside financing.
Project budget
◦ It is a prediction of the costs associated with a particular company
project.
◦ These costs include labour, materials, and other related expenses.
◦ The project budget is often broken down into specific tasks, with
task budgets assigned to each.
◦ A cost estimate is used to establish a project budget.
OTHER TYPES OF BUDGET
Conditional budget
◦ It is a budgeting approach designed for companies with fluctuating
income, high fixed costs, or income depending on sunk costs, as well
as NPOs and NGOs.
Marketing budget
◦ It provides an estimate of the funds needed for promotion, advertising,
and public relations in order to market the product or service.
Revenue budget
◦ It consists of revenue receipts of government and the expenditure met
from these revenues.
◦ Tax revenues are made up of taxes and other duties that the
government levies.
Expenditure budget
◦ They includes spending data items.
BUDGET PREPARATION
Time Frame
◦ Choose a time frame for your budget. Whether you
choose monthly, quarterly or yearly budgeting will
depend on the needs of your business.
Fixed costs
◦ Enter all your fixed expenses like your salary, rent,
insurance and any other known costs.
◦ Note: When starting out and deciding on your
salary, find a balance. Consider what you would
pay someone else to manage your business and pay
yourself that amount.
BUDGET PREPARATION
Variable costs
◦ Enter all your variable expenses like utilities, direct costs of
materials and staff wages. If in doubt, estimate the maximum
amount you expect to spend on these expenses over the budget
period.
◦ Note:  If you can, turn your variable costs into fixed costs. It may
end up saving you money and will become an expense that you
know to expect.
Income
◦ Enter your expected business income over the budget period.
Once your business has been running for a while you can review
past periods to have a good idea of what income to expect.
◦ Note: Be conservative when predicting your income – give
yourself some wriggle room in case things change.
BUDGET PREPARATION
Actuals
◦ Record the actual income and expenses during the budget period.
Then, calculate the difference between your budgeted amount
and actual income and expenses.
Analysis
◦ Throughout the budget period make sure you keep an eye on
how you’re tracking against your budget. If you’re spending too
much, look for ways to cut costs and avoid spending money on
anything that isn’t essential to running your business. If you have
extra funds, look at how to reduce debt, create a financial safety
net or grow your business.
◦ Note:  analysing your budget will help you find seasonal
patterns. You can see if decisions like changing prices or adding
a new product or service, are the right ones.
THANK YOU