Friday, May 1, 2009

Different Types of Budgets. Master Budget. Operating and Financial Budgets. Cash Budget. Static (Fixed) Budget.


Types of Budgets

For Finance Executives, it is necessary to be familiar with the various types of budgets to understand the whole picture. The types of budgets include master, operating (for income statement items comprised of revenue and expenses), financial (for balance sheet items), cash, static (fixed), flexible, capital expenditure (facilities), and program (appropriations for specific activities such as research and development, and advertising). These budgets are briefly explained below.

Master Budget
A master budget is an overall financial and operating plan for a forthcoming calendar or fiscal year. It is usually prepared annually or quarterly. The master budget is really a number of subbudgets tied together to summarize the planned activities of the business. The format of the master budget depends on the size and nature of the business.

Operating and Financial Budgets
The operating budget deals with the costs for merchandise or services produced. The financial budget examines the expected assets, liabilities, and stockholders' equity of the business. It is needed to see the company's financial health.

Cash Budget
The cash budget is for cash planning and control. It presents expected cash inflow and outflow for a designated time period. The cash budget helps management keep cash balances in reasonable relationship to its needs and aids in avoiding idle cash and possible cash shortages. The cash budget typically consists of four major sections:
1. Receipts section, which is the beginning cash balance, cash collections from customers, and other receipts
2. Disbursement section, comprised of all cash payments made by purpose
3. Cash surplus or deficit section, showing the difference between cash receipts and cash payments
4. Financing section, providing a detailed account of the borrowings and repayments expected during the period
Static (Fixed) Budget
The static (fixed) budget is budgeted figures at the expected capacity level. Allowances are set forth for specific purposes with monetary limitations. It is used when a company is relatively stable. Stability usually refers to sales. The problem with a static budget is that it lacks the flexibility to adjust to unpredictable changes.





In industry, fixed budgets are appropriate for those departments whose workload does not have a direct current relationship to sales, production, or some other volume determinant related to the department's operations. The work of the departments is determined by management decision rather than by sales volume. Most administrative, general marketing, and even manufacturing management departments are in this category. Fixed appropriations for specific
projects or programs not necessarily completed in the fiscal period also become fixed budgets to the extent that they will be expended during the year.
Examples are appropriations for capital expenditures, major repair projects, and specific advertising or promotional programs.


We'll cover another type of Budgets on next 2 posts.

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11 comments:

  1. Thank for posting this...It is just what I was looking for in order to do my assignment

    ReplyDelete
  2. Thank for posting this...but please write other types of budget so we can write the other types of budget on our assignment.

    ReplyDelete
  3. thanks for posting this....it can surely help me for preparing my assignment.

    ReplyDelete
  4. thank u....nw i can copy it off nd show it to my boss!

    ReplyDelete
  5. what type of budget does the United States Federal government use?

    ReplyDelete
  6. what is the relationship between objectives budget and operational budget ?? plzz answer this i need it urgently .. i will be very thanful ...

    ReplyDelete
  7. my God thanks a lot i have really benefited from this essay...

    ReplyDelete
  8. efxaristo manamou

    ReplyDelete
  9. I am an Ops Manager and deal with our operating budget. It's a constant game of trying to find the weak areas and tighten up. This could be employees, clients, buying material at better prices, keeping vehicle costs down etc... the list goes on forever.

    ReplyDelete
  10. I got a lot of help frm dis page...u knowwww our math teacher teaches nthng...bt shows much "paitra". . .!

    ReplyDelete

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