Budgeting

Budgeting
 At the completion of this
discussion , you will be able
to explain :

 Why budgeting is important ?

 Relationship of strategic planning with

budgeting
 Various schedules in Master budget &
their interrelationship

 Why cash budget is very important ?

 What are the benefit of budgeting

process
 Budgeting

 Theprocess of formalizing plans

and translating qualitative
narratives into a documented,
quantitative format is called
budgeting
 BUDGET

 Budgets are the financial

culmination of predictions and
assumptions about achieving
not only financial but also
nonfinancial goals and objectives.
 Why Budget is important ?
 Identification of potential problems

 Effective communication tool

 Motivational Tool
Level of participation
 After implementation…
 Control process :

 Variance Analysis

 Corrective measures
 Forecasting & budgeting
Forecasting Budgeting
Mere Estimate Policy & Programmes

No control measures Tool of Control

Preliminary for budget Begins where forecast

end

Forecast are wider in Limited scope

sphere
 MASTER BUDGET
 Combination of :

 Operational budget

 Financial budget
Classification of budgets
1. According to time

2. According to Function

3. According to Flexibility
 1. According to Time
 Long term budget

 Short term budget

 Current budget

 Progressive Budgets
 2. According to function
 Master budget

 Sales budget

 Production budget

 Purchase budge t
 Personnel budget

 Research Budget

 Capital expenditure budget

 Cash budget
 Programme Budget

 Responsibility budget

 Activity based budge

 3. According to Flexibility

 Flexible budget

 Fixed budget
 Limitation of traditional
budgeting
 Carry over of inefficiencies of prior year

 Inflating the budget requirement

 Key problem may be ignored

 Irrational decision due to the absence of

rigorous analysis
 Zero based budgeting
 Assess from the scratch

 justify proposed expenditures

 Process of ZBB
 Determining the objective

 Extent of application

 Development of decision unit

 Development of decision package

 Review and ranking of decision

package

 Preparation of budget
 Reading Assignment
 What is responsibility accounting

 Describe the way in which a responsibility

accounting system is closely linked to an
organization’s budgeting system