what is budget

A detailed plan of operations for a specific future period is called a budget. what is a budget In broad terms, it is a forecast of planned future needs for some or all activities of a business organization for a specific future period, under this a detailed plan of all future activities, such as purchase, sale, income, expenditure etc. goes and the procedure is determined.

what is budgetary control?

The meaning of budgetary control is to determine the plans of business progress in the form of budgets and to operate and control its development according to these budgetary targets. In other words, budgetary control is the act of comparing budget estimates and actual results.

definition of budgeting

A budget is an account of estimates which helps in planning for the maximum utilization of limited resources.

The method of making a budget is called budgeting. By estimating all or some of the activities of any organization for a certain period, the method of planning for it is called budgeting. This plan is presented in writing in the form of a budget.

budget objectives

The most important goal of the budget is to execute the plan with limited resources.

The main objectives of the budget can be explained as follows-

(1) To determine the policies.

(2) To increase efficiency.

(3) Proper classification of income and expenses.

(4) To bring economy in the expenditure of all sectors.

(5) To bring objectivity in planning.

(6) Maintaining the position of liquidity.

(7) Determination of goals.

(8) To develop a sense of coordination and cooperation. (9) Determining capital requirements.

(10) To help the administration.

characteristics of an effective budget

(1) Strong Forecasts

Business forecasts are the cornerstone of any budget and on their basis different types of budgets are prepared.

(2) Having a method and a planned accounting method

while preparing the budget, there is a need for proper data in relation to the various activities of the business organization. For this it is indispensable. The Company has adopted a thorough and systematic accounting system.

(3) Full and Planned Cost Accounting As mentioned,

forecasting is of utmost importance in budgeting. For forecasting in relation to cost, it is necessary that a complete and efficient accounting method should be used in the business.

(4) Establishment of budget

committee Budget making is cooperative work. In small organizations, only the accountant prepares the budget on the basis of management operation and consultation with other high-level officials, but if the organization is large, then this work cannot be left only to the accountant. In the case of large organizations, first of all, the head of each department prepares the departmental budget keeping in view the needs of their respective departments.

(5) Business Policies

Business policies are reflected in every budget, that is, budgets are prepared on the basis of them.

(6) Availability of statistical information

It is also necessary that necessary information related to each department is received in the form of figures for budget making.

(7) Period of a budget

Generally, the period of budget depends on the trend of business, yet the period of the budget should be at least so much that all types of financial and production activities and seasonal changes can be included.

8) Use of budget and knowledge of its limitations

Every officer of a business organization should become familiar with the use of a budget and its limitations. Under the use of budget, it should be seen how budgets help in planning, coordination, and control activities.

what is a fixed budget?

A fixed budget is a budget that is prepared for the same type of conditions of the business organization. The changing circumstances are not taken into account in this budget. This budget is suitable only in stable conditions, it proves inappropriate in unstable conditions. In fact, a fixed budget does not appear to be appropriate from a business point of view. This type of budget should be imposed only in those circumstances when the estimates taken in relation to sales and cost can be absolutely accurate, so it is suitable only in stable conditions to use it in other conditions.

becomes inappropriate. This budget is inappropriate in the following circumstances-

(i) When outside influence (political, fashion, etc.) on the business is

(ii) When the demand for a particular commodity is seasonal, such as woolen clothes

Have importance

(iii) When a new product is to be produced and its demand among customers is uncertain.

(iv) When the production work can be started only after the order is placed.

(v) When the goods are exported.

(vi) When the course of production requires special types of materials and labor, as well as when their supply is uncertain.

It is clear from the above that the fixed budget is adopted for a limited period of time and it is inappropriate for different situations.

flexible budget

At present, a flexible budget is highly used because it is considered suitable in many circumstances and it is changed according to the circumstances and is made on the basis of the principle of variability of outlay or cost. In this budget, costs are related to activity levels. In other words, a flexible budget is a budget that can show the position of costs, sales and profits at different levels of business activity and determine the amount of sales and production at these levels of activity.

classification of budgets

The main types of budgets can be clarified on the following grounds-

(I) on the basis of time

Budgets can be of three types on the basis of time-

(1) Long-term budget

Long-term budgets are related to the long-term planning of the business. Usually, their duration is usually five years or more. These budgets are generally prepared

(2) Short-term budget

A short-term budget is a budget, which is generally prepared for a period of one year and it is generally prepared in monetary units. Material budget, cash budget, etc. can be mentioned in short-term budgets.

(3) Current Budget

These budgets are only part of short-term budgets which are prepared for one or a few months according to the current conditions.

(II) On the basis of elasticity

On the basis of elasticity, the budget can be of two types-

1. Fixed Budget

A fixed budget is also called a static budget. A fixed budget is a budget that is prepared for the same type of conditions of the business enterprise i.e. based on only one level of activity. I. fixed budget is a budget that is prepared for unchanging conditions and does not take into account the level of activity actually achieved."

2 Elastic Budget

An elastic budget is a budget that reflects the position of costs, revenues and profits at different levels of business activity. Levels of activity refer to different amounts of production or sales. I." flexible, budget is a budget that accepts differences in fixed, semi-permanent, and variable costs and is changed with reference to the achieved level of activity."

(III) On the basis of work

On this basis, budgets are kept in two categories-

1. what is a Master Budget

Generally, the integrated summary form of all departmental and subsidiary budgets in an undertaking is called a master budget. Some accountants refer to the budgeted profit-loss account and the balance sheet as the master budget.

2. Departmental/Functional or Subsidiary Budget

In this category, those budgets are kept are made on a functional or departmental basis. That's why these budgets are called subsidiary budgets of the master budget. Auxiliary barges can be classified in a variety of ways. , Their general classification is as follows-

(i) what is Sales Budget

For many business organizations, sales forecasting is considered to be the initial activity of budgeting. The sales budget is concerned with the expected sales for the future budget period. Forecasting is essential for preparing a sales budget. If there is complete assurance regarding the demand for the commodity, then in that case the forecast of production is considered to be an important aspect. Salesmen, branch managers, regional managers, sales managers, operators, etc. all the people help in forecasting.

(ii)what is a Production Budget

The production budget determines the possible production quantity of each item to be produced in the next budget period. In the case of standard work, the quantity of goods produced is expressed in units or in weight, while in the case of non-standard work, standard hours of work are fixed. The total and per unit cost of the item to be produced is also shown in the production budget. In the production budget, production details can be divided on different bases, such as (a) according to products, (b) according to factory departments and (c) according to period. A production budget can also be made by combining these three bases.

The production budget is prepared by the production manager. The following factors are taken into consideration while preparing this budget:

(i) Estimates of sales budget,

(ii) the production capacity of the factory,

(iii) budgetary wing,

(iv) Availability of labor and materials,

(v) Optimum production mix on the basis of key factors.

(iii)what is a Materials Budget

Materials are mainly of two types-direct materials and indirect materials. This budget is made for direct materials. Indirect materials are estimated in overhead budgets. Direct materials are directly related to production. The purpose of preparing this budget is to arrange an uninterrupted continuous supply of material for production. Therefore, at the time of preparing this budget, all those problems are considered which may hinder the availability of materials. Under this budget, the requirement of raw materials is estimated, details of the purchase of the required quantity are prepared at the required time and arrangements are made for the control of raw materials.

(iv) What IS Labor Budget

The estimated direct labor requirement for budgeted production is determined by the labor budget. Past data on the percentage of labor cost to the total costs of each production or department are helpful in budgeting. Direct labor hours and direct labor cost figures are provided under the budget. In this budget, it is estimated how many labor hours will be required for the budgeted production and what will be paid for it i.e. what will be the cost of labor. While preparing a direct labor budget, it is necessary to keep in mind the efficiency of workers, facility of overtime work, training of workers, methods of motivation, labor evacuation, seasonal changes in the demand of workers, etc.

(v)what is a Cash Budget

In the cash budget, the expected receipts and payments of cash for a specified future time period are estimated. In this, the situation of shortage or excess of cash is also shown in the budget period and there is also an indication regarding arranging the shortage or using the excess.

(vi)what is a Capital Expenditure Budget

This budget is a forecast of expenditures to be incurred on fixed assets to meet the fixed production program. For this budget, comparative consideration is also given to the cost and benefits of various alternative capital assets.

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