Tuesday, August 8, 2023

Budgeting

Commercial Studies
- A budget is a detail plan of operations for a speci c future period. It is an estimate of
the needs and expected results prepared in advance to a period it relates to.
- It's features are :
(i) It is expressed in monetary and/or physical units.

(ii) It prepared while keeping in mind the objectives to be achieved and policies to be
followed of an organization.

(iii) It relates to a future period and it prepared in advance.

Forecasting Basis of Distinction Budgeting

Forecasting refers to the Meaning Budgeting refers to preparing of

anticipation of the future events budgets i.e. a detail plan of
operations

It may be prepared for multiple Period It is prepared for a year or lesser

years than that

Typically less detailed than Level of Detail Typically more detailed than
budgeting forecasting

Begins before budgeting Stage Begins after forecasting

More exibility than budgeting Flexibility Less exibility than budgeting

- Sales Budget - Sales Budget is a forecast of sales to achieved during a speci c

period in future. It essentially lays down the revenue goals of an enterprise. It forms
as the basis for the preparation of all other budgets.
- Sales manager is responsible for the preparation and execution of sales budgets.
- Production Budget - It is an estimate of the total volume of production product wise
and weekly or month wise and a forecast of the closing inventory of the nished
product.
- Production budget is based on the sales budget (Generally).

1

fl
fl
fi
fi
fi
 - The work manager is responsible for the preparation and execution of the production
budget.
- Purchase budget - It refers to details of the quality and quantity of things to be
purchased for the rm in the coming next year. it consists of the total amount to be
spent on purchases and amount to be spent on the purchase of each item.
- Cash Budget - a summary statement of the expected in ow and out ow of cash
during a speci c future period. It helps in :

(i) determining the future cash requirements of the rm

(ii) planning for those requirements

- Master Budget - It is the summary of all budgets. a summary budget incorporating
its component functional budgets, which is then nally approved, adopted and
employed. Hence, it is known as a summary budget.
- Utility Of Budgets :
(i) Higher E ciency - Budgets help a rm become more e cient and economical. It
gives the management the most pro table combination of factors of production.

(ii) Sound Planning - Budgets make planning precise and purposeful. It expresses the
objectives in physical and/or monetary units. Therefore, it forces managers to thing
about the future.

(iii) Sense of Responsibility - Budgeting creates divisional and departmental

responsibility. It prevents 'buckpassing' and brings a sense of responsibility over the
managers.

(iv) Coordination - It forces the executives to coordinate with one another as budgets
are prepared in consultation with a number of executives.

(v) Source Of Motivation - It represents the milestones of the future period. It lays down
the goals and/or objectives to be attained. Hence, it acts as a source of motivation.

2

ffi
fi
fi
fi
fi
fi
fi
fl
ffi
fl