Define budgeting, write a comprehensive note on the approaches of budgeting

Budgeting: this is the method whereby a number of events are performed in order to

formulate a budget, a budget can be said to be a quantitative plan used as a tool for deciding

which activities will be chosen for a future period. A budget can be defined again as the

broad formal plan expressed in quantitative terms, describing the anticipated operations of an

organization over time.

In any business, the resulting operations are carried out for planning purposes.

1. Formulating the evaluations of the future day to day activities of the business

2. Conducting the estimates of future sales

3. Organising estimates of future cash collections and disbursement

4. Summarizing these estimates into an income statement and balance sheet.

The approaches of Budgeting.

 Kaizen budgeting: this budgeting implies constant improvement. The kaizen budget

is made with expected cost improvements assimilated at the start of the year.

 Zero based budgeting: for this type of budgeting, any action at the start of each year

is set as zero .all the expenditure must be justified on a cost benefit basis including the

justification of continuing the existence.

 Base budgeting: in the base budgeting the stage one of the budget is planned with

just enough resources to run the organization as a going concern .any incremental

spending above this level must be acceptable on a cist benefit basis.

 Activity based budgeting: in an activity based budgeting the budget recognizes that

it is the processes that generate cost in a business. In addition, the aspiration is to

control these cost drivers for each identifiable activity the cost of unit is measured the
 demand is measured a budgeted cost is set for each unit of the activity and the budget

is designed around activity terms.

 Incremental budgeting: the past budgeting like the last year’s budget is used like the

initial point for the new budget and a number of increase are pre-programmed .such as

, increases salary, the inflationary control, increases and overall market growth

changes.