ECONOMICS

PRESENTATION
PUBLIC FINANCE
PAPER: PAPER 2 (BUDGET AND ITS COMPONENTS)
NAME: AAVIKA MISHRA
CLASS: BA 2 SEM 3
COLLEGE ROLL NO: 194137
UNIVERSITY ROLL NO: 190380020010
TEACHER’S NAME: DR. ANUPMA SRIVASTAVA
BUDGET

A budget is a financial plan for a defined period, often one year. It may also include planned
sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and
cash flows. Companies, governments, families and other organizations use it to express
strategic plans of activities or events in measurable terms.
A budget is the sum of money allocated for a particular purpose and the summary of intended
expenditures along with proposals for how to meet them. It may include a budget surplus,
providing money for use at a future time, or a deficit in which expenses exceed income.
TYPES OF BUDGET

 Sales budget – an estimate of future sales, often broken down into both units. It is used
to create company and sales goals.
 Production budget – 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. Created by product
oriented companies.
 Capital budget – 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.
 Cash flow/cash budget – 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.
 Conditional budgeting 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 – an estimate of the funds needed for promotion, advertising, and
public relations in order to market the product or service.
 Project budget – 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.
 Revenue budget – 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 – includes spending data items.
 Flexibility budget – it is established for fixed cost and variable rate is determined per
activity measure for variable cost.
 Appropriation budget – a maximum amount is established for certain expenditure based
on management judgment.
 Performance budget – it is mostly used by organization and ministries involved in the
development activities. This process of budget takes into account the end results.
 Zero based budget – A budget type where every item added to the budget needs
approval and no items are carried forward from the prior years budget. This type of
budget has a clear advantage when the limited resources are to be allocated carefully and
objectively. Zero based budgeting takes more time to create as all pieces of the budget
need to be reviewed by management.
 Personal budget – A budget type focusing on expenses for self or for home, usually
involves an income to budget.
COMPONENTS OF BUDGET

 Revenue Budget

This financial statement includes the revenue receipts of the government i.e. revenue
collected by way of taxes & other receipts. It also contains the items of expenditure met from
such revenue.

(a) Revenue Receipts ↓

These are the incomes which are received by the government from all sources in its ordinary
course of governance. These receipts do not create a liability or lead to a reduction in assets.
Revenue receipts are further classified as tax revenue and non-tax revenue.
 . Tax Revenue :-
Tax revenue consists of the income received from different taxes and other duties levied by the
government. It is a major source of public revenue. Every citizen, by law is bound to pay them and non-
payment is punishable.
Taxes are of two types, viz., Direct Taxes and Indirect Taxes.
Direct taxes are those taxes which have to be paid by the person on whom they are levied. Its burden can
not be shifted to some one else. E.g. Income tax, property tax, corporation tax, estate duty, etc. are direct
taxes. There is no direct benefit to the tax payer.
Indirect taxes are those taxes which are levied on commodities and services and affect the income of a
person through their consumption expenditure. Here the burden can be shifted to some other person. E.g.
Custom duties, sales tax, services tax, excise duties, etc. are indirect taxes.
  Non-Tax Revenue :-
Apart from taxes, governments also receive revenue from other non-tax sources.
The non-tax sources of public revenue are as follows :-
Fees : The government provides variety of services for which fees have to be paid. E.g. fees paid for registration of property,
births, deaths, etc.
Fines and penalties : Fines and penalties are imposed by the government for not following (violating) the rules and regulations.
Profits from public sector enterprises : Many enterprises are owned and managed by the government. The profits receives from
them is an important source of non-tax revenue. For example in India, the Indian Railways, Oil and Natural Gas Commission, Air
India, Indian Airlines, etc.
Gifts and grants : Gifts and grants are received by the government when there are natural calamities like earthquake, floods,
famines, etc.
Special assessment duty : It is a type of levy imposed by the government on the people for getting some special benefit. For
example, in a particular locality, if roads are improved, property prices will rise. The Property owners in that locality will benefit
due to the appreciation in the value of property. Therefore the government imposes a levy on them which is known as special
assessment duties.
 Revenue Expenditure: Revenue expenditure is the expenditure incurred for the routine, usual and
normal day to day running of government departments and provision of various services to citizens. It
includes both development and non-development expenditure of the Central government. Usually
expenditures that do not result in the creations of assets are considered revenue expenditure.
Expenses included in Revenue Expenditure :
 Expenditure by the government on consumption of goods and services.
 Expenditure on agricultural and industrial development, scientific research, education, health and
social services.
 Expenditure on defence and civil administration.
 Expenditure on exports and external affairs.
 Grants given to State governments even if some of them may be used for creation of assets.
 Payment of interest on loans taken in the previous year.
 Expenditure on subsidies.
 Capital Budget
This part of the budget includes receipts & expenditure on capital account projected for the next
financial year. Capital budget consists of capital receipts & Capital expenditure.
(a) Capital Receipts: Receipts which create a liability or result in a reduction in assets are called
capital receipts. They are obtained by the government by raising funds through borrowings, recovery of
loans and disposing of assets.
(b) Capital Expenditure: Any projected expenditure which is incurred for creating asset with a long
life is capital expenditure. Thus, expenditure on land, machines, equipment, irrigation projects, oil
exploration and expenditure by way of investment in long term physical or financial assets are capital
expenditure.
CONCLUSION

A good budget conclusion shows that the inhabitants of that country are enjoying increased
prosperity and well being. The strong performance and effort aim for the improvement of
productivity and labor force participation.

A strong economy is a clear sign of development and implementation of policy for making a
better use of natural resources as well as human resources which results in future growth and
prosperity.

These strong policies will be proved as best weapons against the effects of future problems.
Some of those policies will refine the past reforms. The challenges to improve the economic
growth will find solutions.
BIBLIOGRAPHY

 https://www.economicsdiscussion.net
 https://www.investopedia.com
 https://www.yourarticlelibrary.com
 https://En.wikipedia.org